nep-mac New Economics Papers
on Macroeconomics
Issue of 2022‒07‒25
48 papers chosen by
Daniela Cialfi
Universita' di Teramo

  1. Monetary/Fiscal Policy Mix And The Size Of Government Spending Multiplier By Rym Aloui
  2. Hidden Stagflation By Takahashi, Yuta; Takayama, Naoki
  3. Choosing the European Fiscal Rule By Bušs, Ginters; Grüning, Patrick; Tkačevs, Oļegs
  4. Output Gap Estimation and Monetary Policy with Imperfect Knowledge By Pei Kuang; Kaushik Mitra; Li Tang
  5. Getting to the Core: Inflation Risks Within and Across Asset Classes By Xiang Fang; Yang Liu; Nikolai Roussanov
  6. Monetary policy transmission during QE times: role of expectations and term premia channels By Kaminska, Iryna; Mumtaz, Haroon
  7. Cyclical Activity and Inflation under Secular Stagnation: Empirical Evidence Using Data on Japan's Lost Decades By Masahiko Shibamoto
  8. Greater Than the Sum of the Parts: Aggregate vs. Aggregated Inflation Expectations By Alexander Dietrich; Edward S. Knotek; Kristian Ove R. Myrseth; Robert W. Rich; Raphael Schoenle; Michael Weber
  9. Considerations on the Monetary Policy Framework of the European Central Bank By Andrea Giorgio Tosato
  10. The spillover of euro area shocks to the Maltese economy By William Gatt; Germano Ruisi
  11. How the Czech government got the pandemic wrong By Bo?ena Kade?ábková; Emilie Ja?ová
  12. How Could Oil Price and Policy Rate Hikes Affect the Near-Term Inflation Outlook? By Jan J. J. Groen; Adam I. Noble
  13. The credit channel of monetary transmission in the US: Is it a bank lending channel, a balance sheet channel, or both, or neither? By Sophocles N. Brissimis; Michalis-Panayiotis Papafilis
  14. Household Expectations and Dissent Among Policymakers By Moritz Grebe; Peter Tillmann
  15. The local supply channel of QE: evidence from the Bank of England’s gilt purchases By Froemel, Maren; Joyce, Michael; Kaminska, Iryna
  16. Aggregate Lapsation Risk By Ralph S. J. Koijen; Hae Kang Lee; Stijn Van Nieuwerburgh
  17. GDP and Welfare: Empirical Estimates of a Spectrum of Opportunity By Robert Bucknall; Stephen Christie; Richard Heys; Cliodhna Taylor
  18. New Facts on Consumer Price Rigidity in the Euro Area By Erwan Gautier; Cristina Conflitti; Riemer P. Faber; Brian Fabo; Ludmila Fadejeva; Valentin Jouvanceau; Jan-Oliver Menz; Teresa Messner; Pavlos Petroulas; Pau Roldan-Blanco; Fabio Rumler; Sergio Santoro; Elisabeth Wieland; Helene Zimmer
  19. Advancing the Monetary Policy Toolkit through Outright Transfers By Sascha Buetzer
  20. Nowcasting Macroeconomic Variables Using High-Frequency Fiscal Data By Robert Ambrisko
  21. The Business Leaders’ Pulse—An Online Business Survey By Tony Chernis; Chris D'Souza; Kevin MacLean; Tasha Reader; Joshua Slive; Farrukh Suvankulov
  22. Digital Money and Central Bank Operations By Mr. Charles M. Kahn; Jihad Alwazir; Mr. Manmohan Singh
  23. Tracking Economic and Financial Policies During COVID-19: An Announcement-Level Database By Ms. Prachi Mishra; Mr. Divya Kirti; Yang Liu; Jan Strasky; Soledad Martinez Peria
  24. The First Steps toward Disinflation By James B. Bullard
  25. Do Monetary Policy Outcomes Promote Stability in Fragile Settings? By Patrick A. Imam; Oumar Diallo; Steve Loris Gui-Diby
  26. Fiscal Multipliers and Informality By Davide Furceri; Pietro Pizzuto; Emilio Colombo; Patrizio Tirelli
  28. Communicating Data Uncertainty: Multi-Wave Experimental Evidence for U.K. GDP By Ana Galvao; James Mitchell
  29. UK Economic Conditions during the Pandemic: Assessing the Economy using ONS Faster Indicators By George Kapetanios; Fotis Papailias
  30. Kantian Optimization with Quasi-Hyperbolic Discounting By Kirill Borissov; Mikhail Pakhnin; Ronald Wendner
  31. Monetary Policy and Exchange Rate Dynamics in a Behavioral Open Economy Model By Pawel Zabczyk; Marcin Kolasa; Sahil Ravgotra
  32. Improving subnational governments’ resilience in the wake of the COVID-19 pandemic By Luiz de Mello; Teresa Ter-Minassian
  33. Inflation Dynamics in Advanced Economies: A Decomposition into Cyclical and Non-Cyclical Factors By Weicheng Lian; Andreas Freitag
  34. Public Pension Reforms and Retirement Decisions: Narrative Evidence and Aggregate Implications By Huixin Bi; Sarah Zubairy
  35. The shifts and the shocks: bank risk, leverage, and the macroeconomy By Kuvshinov, Dmitry; Richter, Björn; Zimmermann, Kaspar
  36. Optimal Threshold Taxation: An Empirical Investigation for Developing Economies By Lucas Menescal; José Alves
  37. Nowcasting the Maltese economy with a dynamic factor model By Rueben Ellul; Germano Ruisi
  38. Gold, Bitcoin, and Portfolio Diversification: Lessons from the Ukrainian War By Kim Oosterlinck; Ariane Reyns; Ariane Szafarz
  39. Was Pandemic Fiscal Relief Effective Fiscal Stimulus? Evidence from Aid to State and Local Governments By Jeffrey Clemens; Philip G. Hoxie; Stan Veuger
  40. Business creation during Covid-19 By Bahaj, Saleem; Piton, Sophie; Savagar, Anthony
  41. A stress testing framework for the Maltese household sector By Kirsten Abela; Ilias Georgakopoulus
  42. Interest Rate Caps in an Economy with Formal and Informal Credit Markets By Jorge Pozo
  43. Rational housing demand bubble By Lise Clain-Chamosset-yvrard; Xavier Raurich; Thomas Seegmuller
  44. Teaching Income Inequality with Data-driven Visualization By Sang Truong; Humberto Barreto
  45. Economic, technological and social drivers of cryptocurrency market evolution and its managerial impact By Holtfort, Thomas; Horsch, Andreas; Schwarz, Joachim
  46. Targeting moments for calibration compared with indirect inference By Meenagh, David; Minford, Patrick; Xu, Yongdeng
  47. Revenue Assessment of Goods and Services Tax (GST) in India. By Mukherjee, Sacchidananda
  48. Heterogeneity in Household Spending and Well-being around Retirement By Patrick Moran; Martin O\rquote Connell; Cormac O\rquote Dea; Francesca Parodi

  1. By: Rym Aloui (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France)
    Abstract: This paper analyzes the size of government spending multiplier in two policy mix cases: Active Monetary/Passive Fiscal policy (regime M) in the first instance and Passive Monetary/Active Fiscal policy (regime F), in the sense of Leeper (1991), in the second. I develop a New-Keynesian model where preferences are subject to external deep habits and where some households do not have access to financial markets. I show that these two specifications allow for the crowding in of private consumption in both regimes. However, the private investment falls in regime M while it rises in regime F as a response to a government spending shock. In addition, I show that the impact multiplier increases with the degree of deep habits in regime M, while it decreases in regime F. In this framework, in a low nominal interest rate environment, the government spending multiplier is not too large as vast studies show. However, I find that the global effectiveness of government spending is larger in regime F than in regime M, even though the impact multiplier is greater than unity in both regimes.
    Keywords: Wealth Effects, Government Spending Multiplier, Zero Lower Bound, Fiscal Theory of the Price Level, Monetary and Fiscal Rules, Public Debt.
    JEL: E63 E52 E62 E32
    Date: 2022
  2. By: Takahashi, Yuta; Takayama, Naoki
    Abstract: We present evidence that the rise in inflation in Japan since 2014 is a result of a hidden stagflation: the relative prices of durable consumption and ICT investment goods stopped declining, reflecting technology stagnation and exerting an inflationary pressure on the economy and; the real side of the Japanese economy simultaneously started stagnating even further. We construct a multi-good monetary model to account for these facts together and quantify the impact of the technology stagnation on the aggregate inflation rate. We develop a new sign restriction approach to construct informative lower bounds to the impact of the technology stagnation on long-run inflation without relying on the exact Euler equation and some of the balanced growth path properties. By using the lower bounds, we find that inflation would be close to 0% or even negative without the technology stagnation. Moreover, the technology stagnation explains a sizable fraction of the observed slowdown in the real GDP and consumption growth. Our findings challenge the conventional view that Japan emerged from long-lasting deflation owing to the unconventional monetary policies. Finally, we apply our analysis to European countries and uncover the hidden stagflation there as well.
    JEL: E31 E43 E52 E58
    Date: 2022–07
  3. By: Bušs, Ginters; Grüning, Patrick; Tkačevs, Oļegs
    Abstract: In order to contribute to the ongoing discussions at the European Union level about the potential simplification of its fiscal framework, we evaluate the economic and public finance stabilization properties of two benchmark fiscal rules using a New Keynesian small open economy model. If these fiscal rules are implemented one at a time, having just an expenditure growth rule tends to yield more stable macroeconomic outcomes but more volatile public finances, as compared to having only a structural balance rule. Much of the quantitative differences in relative volatilities can be accounted for by using a modified public expenditure definition in the expenditure growth rule, in particular the removal of debt service payments. Strong-enough debt correction for either fiscal rule contains public debt volatility at little expense to long-run macroeconomic stability. There is also a welfare gain for households from having only an expenditure growth rule.
    Keywords: Fiscal policy; DSGE; Small open economy; Fiscal-monetary policy interaction
    JEL: E27 E32 E62 E63 F41 H63
    Date: 2022–07
  4. By: Pei Kuang (University of Birmingham); Kaushik Mitra (University of Birmingham); Li Tang (Middlesex University)
    Abstract: We analyze stability of a large number of recommended output gap estimation methods and their monetary policy implications – not studied in the existing literature – in a New Keynesian model where the policymaker estimates the output gap over time. A sufficiently large response to inflation and small response to output gap estimates robustly delivers good welfare performance, irrespective of the choice of detrending methods. Across all methods, while the optimal response to inflation is similar in magnitude, that to output gap estimates varies considerably. Methods that intrinsically produce large and volatile output gap estimates are prone to self-reinforcing deflation spirals with large welfare loss; the optimal response to output gap estimates in these methods is small.
    Keywords: Detrending, Monetary policy, Expectations, Learning, Inflation, Welfare
    JEL: C18 E17 E32 E52
    Date: 2022–07
  5. By: Xiang Fang; Yang Liu; Nikolai Roussanov
    Abstract: Do “real” assets protect against inflation? Core inflation betas of stocks are negative while energy betas are positive; currencies, commodities, and real estate also mostly hedge against energy inflation but not core. These hedging properties are reflected in the prices of inflation risks: only core inflation carries a negative risk premium, and its magnitude is consistent both within and across asset classes, uniquely among macroeconomic risk factors. While high core inflation tends to be followed by low real output, consumption, and dividend payouts, it impacts asset prices through both cash-flow and discount rate channels. The relative contribution of core and energy changes over time, helping explain the time-varying correlation between stock and bond returns. A two-sector New Keynesian model qualitatively accounts for these facts and implies that the changing stock-bond correlation can be attributed to the shifting importance of supply and demand shocks in driving energy inflation over time.
    JEL: E31 E44 E5 F31 G12 G15
    Date: 2022–06
  6. By: Kaminska, Iryna (Bank of England); Mumtaz, Haroon (Queen Mary University of London)
    Abstract: This paper studies monetary policy transmission mechanisms during QE. Using high frequency yield curve event studies of monetary policy announcements in combination with a dynamic term structure model, we can identify four types of monetary policy surprises: action, signalling (working through expected policy rates), policy uncertainty and QE‑specific gilt supply (both working through term premia). Applying the method to the case of the UK, we find that these channels have often operated together. Importantly, their transmission mechanisms into financial markets and macroeconomy differ, as do their relative strengths. These findings emphasize that for a proper evaluation of QE macroeconomic effects, it is key to identify yield curve channels operating during a particular QE programme.
    Keywords: Monetary policy; quantitative easing; monetary transmission mechanism; high frequency data; dynamic term structure model; local projection model
    JEL: C58 E43 E52 E58 G12
    Date: 2022–05–13
  7. By: Masahiko Shibamoto (Research Institute for Economics and Business Administration and Center for Computational Social Science, Kobe University, JAPAN)
    Abstract: This paper disputes the suspicions about the existence and stability of the trade-off between nominal inflation and the real economy when missing deflation and reinflation under secular stagnation by providing empirical evidence of the stability of this short-run trade-off. To this end, we construct a simple measure of demand-pull pressures, namely the cyclical activity index, using time-series data for a period that includes Japan's secular stagnation. We then quantitatively examine the relationship between inflation and the measured cyclical activity. The empirical results support that the cyclical activity index has a stable and economically meaningful relationship with short-term inflation.
    Keywords: Inflation; Cyclical activity; Phillips curve; Economic slack; Secular stagnation; Japan
    JEL: E31 E32
    Date: 2022–06
  8. By: Alexander Dietrich; Edward S. Knotek; Kristian Ove R. Myrseth; Robert W. Rich; Raphael Schoenle; Michael Weber
    Abstract: Using novel survey evidence on consumer inflation expectations disaggregated by personal consumption expenditure (PCE) categories, we document the paradox that consumers' aggregate inflation expectations usually exceed any individual category expectation. We explore procedures for aggregating category inflation expectations, and find that the inconsistency between aggregate and aggregated inflation expectations rises with subjective uncertainty and is systematically related to socioeconomic characteristics. Overall, our results are inconsistent with the notion that consumers' aggregate inflation expectations comprise an expenditure-weighted sum of category beliefs. Moreover, aggregated inflation expectations explain a greater share of planned consumer spending than aggregate inflation expectations.
    Keywords: Household expectations; Survey; Sectoral expectations; Inflation expectations
    JEL: C83 E52 E31
    Date: 2022–06–22
  9. By: Andrea Giorgio Tosato (Central Bank of Malta)
    Abstract: This working paper offers some considerations on the monetary policy framework of the European Central Bank. The trade-offs arising from adopting a point target configuration over a range target one are assessed in terms of their flexibility vs. inflation anchoring properties. This layout is then confronted with the policy framework in use in the euro area prior to the adoption of the new monetary strategy, which is interpreted as leaning on the side of flexibility. The increased likelihood of dis-anchoring of long-term inflation expectations experienced in the euro area since 2013, however, suggests that the policy framework could benefit from a rebalancing towards a formulation with stronger anchoring properties. The inflation aim of the ECB could thus be reformulated with the introduction of a symmetric 2%-point target. By evaluating this arrangement in terms of the price stability definition, two regions emerge where either the policy aim (symmetric 2%-point target) or the price stability definition (between 0% and 2%) are satisfied, but not both. To avoid any inconsistency in the policy framework, an inflation aim centred at 2% requires an amendment of the price stability definition.
    JEL: E42 E52 E58
    Date: 2022
  10. By: William Gatt; Germano Ruisi (Central Bank of Malta)
    Abstract: This paper develops a two-block Structural Vector Autoregression (SVAR) to estimate the spillover of external shocks to the Maltese economy. The model focuses on five broad macroeconomic shocks hitting the euro area; an aggregate demand shock, two aggregate supply shocks which respectively proxy better overall productivity and more favourable conditions on the global market for oil, a generic monetary policy shock encompassing both conventional and unconventional interventions, and a financial stress shock. The model is estimated using Bayesian methods over a sample that goes from 2003Q1 to 2019Q4 and considers a number of Maltese variables that are representative of both the real and the financial side of the economy. The results point toward a relevant role of the identified shocks in explaining the fluctuations of the Maltese economy with particular regard to the aggregate demand and financial stress shocks. Overall, shocks hitting the euro area are estimated to contribute to around one third of the fluctuations of the Maltese output and prices in the long run.
    JEL: C11 C32 E32 F41
    Date: 2022
  11. By: Bo?ena Kade?ábková (University of Economics, Prague); Emilie Ja?ová (Faculty of Social Sciences, Charles University in Prague)
    Abstract: The aim of the article is to prove by econometric analysis the suitability of NAIRU and NARRU concepts to assess the adequacy of measures against Covid 19 to address the epidemiological and economic situation in the Czech Republic. The analysis confirmed that in the Czech Republic the economy was reduced together with the escalation of the epidemic. The same development was found in the period March, April, October, November and December 2020 and February 2021. The government was therefore to take the path of greater prevention of the disease (eg timely adequate respirators, tests and vaccines). On the contrary, in January, February, May, June, July, August and September 2020 and January 2021, a lower value of NAIRU indicates an epidemiological-economic balance in the economy even with a higher unemployment rate. This is a consequence of the hasty tightening of anti-epidemiological restrictions.
    Keywords: Phillip´s curve, NAIRU, NARRU, phases of the economic cycle, unemployment
    JEL: E24 E32 E37
    Date: 2021–07
  12. By: Jan J. J. Groen; Adam I. Noble
    Abstract: Since the start of the year, oil prices have risen sharply owing to worsening expectations regarding global oil supply. We’ve also had an acceleration of inflation in the United States and the euro area, as well as a sharp steepening of the expected paths of policy rates in both economies. These factors, combined with the potential for a slowdown in growth, have made the inflation outlook quite uncertain. In this post, we combine the demand and supply oil price decomposition from the New York Fed’s Oil Price Dynamics Report with yield curve data to quantify the likely path of inflation in the United States and the euro area over the next twelve months. Based on our analysis, we anticipate that inflation will likely remain elevated through the second quarter of 2023, despite payback for the inflationary impact of current negative oil supply shocks during the second half of 2022 and the disinflationary effects of tighter monetary policy.
    Keywords: inflation; oil prices; interest rates; forecasting
    JEL: E2 G1
    Date: 2022–06–24
  13. By: Sophocles N. Brissimis (University of Piraeus and Bank of Greece); Michalis-Panayiotis Papafilis (University of Piraeus)
    Abstract: We develop a theoretical framework that extends the Bernanke and Blinder (1988) model to incorporate imperfect substitution between internal and external finance of firms in order to study the operation of both the bank lending and the balance sheet channels of monetary transmission in the US. Our model is used to quantify the financial accelerator effects due to the operation of these channels. Empirically, we employ multivariate cointegration techniques to identify the equilibrium relationships included in our model, and we provide evidence that only the balance sheet channel is operational for the period before and after the global financial crisis.
    Keywords: Monetary transmission mechanism; bank lending channel; balance sheet channel; financial structure; multivariate cointegration
    JEL: C32 C52 E44 E51 E52
    Date: 2022–07
  14. By: Moritz Grebe (University of Giessen); Peter Tillmann (University of Giessen)
    Abstract: This paper studies the impact of dissent in the ECB's Governing Council on uncertainty surrounding households' inflation expectations. We conduct a randomized controlled trial using the Bundesbank Online Panel Households. Participants are provided with alternative information treatments concerning the vote in the Council, e.g. unanimity and dissent, and are asked to submit probabilistic inflation expectations. The results show that the vote is informative. Households revise their subjective inflation forecast after receiving information about the vote. Dissenting votes cause a wider individual distribution of future inflation. Hence, dissent increases households' uncertainty about inflation. This effect is statistically significant once we allow for the interaction between the treatments and individual characteristics of respondents. The results are robust with respect to alternative measures of forecast uncertainty and hold for different model specifications. Our findings suggest that providing information about dissenting votes without additional information about the nature of dissent is detrimental to coordinating household expectations.
    Keywords: central bank communication, disagreement, inflation expectations, randomized controlled trial, survey
    JEL: E52 E43 E32
    Date: 2022
  15. By: Froemel, Maren (Bank of England); Joyce, Michael (Bank of England); Kaminska, Iryna (Bank of England)
    Abstract: One way quantitative easing (QE) purchases of government bonds by central banks may affect the yield curve is by creating scarcity in the purchased securities, leading to an increase in their prices or equivalently a reduction in their yields. We analyse and compare the importance of this so-called 'local supply' (or scarcity) channel across all of the Bank of England’s QE government bond purchase programmes during 2009 to 2020. We find strong evidence overall for the role of the local supply channel in explaining gilt yield reactions both to QE announcements ('ex ante'), as well as after purchases have begun ('ex post'). The largest impact on the yield curve through local supply seems to have been in response to the initial QE1 announcements in 2009, both in terms of total impact (the impact of the announced programme), marginal impact (the impact of a given amount of purchases) and relative impact (the proportion of the total change in yields explained). Our findings also imply there may have been an increase in the relative importance of other channels and/or policies over time.
    Keywords: QE; local supply; preferred habitat; yield curve; monetary policy.
    JEL: E43 E52 E58 E65 G11 G12
    Date: 2022–05–13
  16. By: Ralph S. J. Koijen; Hae Kang Lee; Stijn Van Nieuwerburgh
    Abstract: We study aggregate lapsation risk in the life insurance sector. Using the regulatory reporting of historical lapse rates by life insurers, we empirically document the counter-cyclicality of lapsation behavior. We construct two lapsation risk factors that explain a large fraction of the common variation in lapse rates of the 30 largest life insurance companies. The first is a cyclical factor that correlates with credit spreads and employment, while the second factor is a trend factor that correlates with the level of interest rates. Using a novel policy-level database from a large life insurer, we examine the heterogeneity in risk factor exposures based on policy and policyholder characteristics. Young policyholders with higher health risk are more likely to lapse their policies during economic downturns. We explore the implications for hedging and valuation of life insurance contracts. Ignoring aggregate lapsation risk results in cross-subsidization across policyholders with different lapsation risk, and in a mispricing of life insurance policies. Our results have implications for the welfare costs of business cycles.
    JEL: E32 E44 G12 G22 G52
    Date: 2022–06
  17. By: Robert Bucknall; Stephen Christie; Richard Heys; Cliodhna Taylor
    Abstract: In Heys, Martin, and Mkandawire (2019), a conceptual process was laid out to utilise existing economic statistics to tell a more complete story about economic welfare than can be delivered solely by Gross Domestic Product (GDP) alone. This paper takes this theoretical work and delivers i) further thoughts on the method and how it complies with current statistical frameworks, ii) a summary of the data which already exists in the UK for immediate use, iii) methodological steps which have been taken to fill data gaps and derive estimates, iv) empirical estimates of the different measures developed in the 'Spectrum' as a proof of concept, and v) areas of further development identified in developing these estimates, both empirically and conceptually.
    Keywords: capital, digital services, economic measurement, modern economy, national accounts, official statistics, time use, welfare
    JEL: A13 E01 E21 E22 I31
    Date: 2021–07
  18. By: Erwan Gautier (Banque de France); Cristina Conflitti (Banca d’Italia); Riemer P. Faber (National Bank of Belgium); Brian Fabo (National Bank of Slovakia); Ludmila Fadejeva (Latvijas Banka); Valentin Jouvanceau (Lietuvos Bankas); Jan-Oliver Menz (Deutsche Bundesbank); Teresa Messner (Oesterreichische Nationalbank); Pavlos Petroulas (Bank of Greece); Pau Roldan-Blanco (Banco de Espana); Fabio Rumler (Oesterreichische Nationalbank); Sergio Santoro (European Central Bank); Elisabeth Wieland (Deutsche Bundesbank); Helene Zimmer (National Bank of Belgium)
    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.
    Keywords: price rigidity, inflation, consumer prices, micro data
    JEL: D40 E31
    Date: 2022–06–30
  19. By: Sascha Buetzer
    Abstract: This paper argues that in reserve currency issuing economies at the effective lower bound, outright transfers from the central bank to households are both more equitable and more effective in achieving monetary policy objectives than asset purchases or negative interest rates. It shows that concerns pertaining to central banks’ policy solvency and equity position can be addressed through a careful assessment of a central bank's loss absorbing capacity and, if need be, tiered reserve remuneration policies. It also spells out key differences to a debt or money financed fiscal stimulus, which are particularly pronounced in a currency union without a central fiscal capacity. The paper concludes by discussing broader institutional, political, and legal considerations.
    Keywords: Monetary Policy; Outright Transfers; Central Bank Balance Sheet; Central Bank Solvency; Central Bank Equity; Helicopter Money; Inequality; policy solvency; equity position; revaluation account; Unconventional monetary policies; Financial statements; Global
    Date: 2022–05–06
  20. By: Robert Ambrisko
    Abstract: Macroeconomic data are published with a time lag, making room for nowcasting macroeconomic variables using fiscal data. This is because a) monthly and daily fiscal data are available from the state budget in a very timely manner and b) many fiscal data are the function of macroeconomic variables. I employ two nowcasting models, bridge equations and MIDAS regressions, which link quarterly macroeconomic variables to monthly fiscal data for the Czech Republic. Bridge equations are found to be particularly suitable for nowcasting the wage bill using social contributions, achieving a 2% improvement in the root mean square error (RMSE) of one-quarter recursive forecasts compared to historical CNB forecasts. Further, I propose a tractable method for incorporating daily data into the nowcasting models, relying on STL decomposition by Cleveland et al. (1990). Depending on the timing, the RMSE for the wage bill can be up to 4% lower when the available daily data on social contributions are taken into account in the nowcasting models too.
    Keywords: Bridge equations, daily data, fiscal, midas, nowcasting, real-time data, short-term forecasting, STL
    JEL: C53 C82 E37
    Date: 2022–06
  21. By: Tony Chernis; Chris D'Souza; Kevin MacLean; Tasha Reader; Joshua Slive; Farrukh Suvankulov
    Abstract: The Business Leaders’ Pulse is a new online survey conducted each month. It is designed to provide timely and flexible input into the Bank of Canada’s monetary policy decision making while also creating a platform to analyze business conditions and uncertainty. Since May 2021, the Bank has been reaching out to leaders of almost all types of businesses across the country with this short questionnaire inquiring about their sales and employment growth expectations, the risks to their business outlook, and topical questions that address specific information needs of the Bank. This survey is designed to complement the Bank’s quarterly Business Outlook Survey conducted in person. The Business Leaders’ Pulse has already proven valuable in getting timely feedback from firms about the effects of a rapidly changing economic environment, including the impact of COVID-19 and the Russian invasion of Ukraine. It has also helped Bank staff assess the extent of and reaction to ongoing economic challenges, such as supply chain bottlenecks and labour shortages.
    Keywords: Monetary policy and uncertainty; Recent economic and financial developments
    JEL: C83 D22 E32
    Date: 2022–06
  22. By: Mr. Charles M. Kahn; Jihad Alwazir; Mr. Manmohan Singh
    Abstract: The rise of new and proposed monetary vehicles, including CBDC, stablecoins, payment service providers etc., are unprecedented. An important question for central banks is the extent to which these innovations upend the role of and implementation of monetary policy. The paper focuses on the interest rate channel and if digital money (especially CBDC) will change monetary policy and central bank operations. We argue that new policy instruments make sense only to the extent that there is limited substitutability between the various payment sectors. We analyze trends in currency-in-circulation, and how it may impact central bank’s seigniorage, monetary base, and transactional velocity of digital money if money demand declines. Liquidity outside the monetary base will also be important to understand.
    Keywords: Base money; CBDC; central banking operations; currency in circulation; digital money; mobile phone operators; seigniorage; central bank operations Charles Kahn; jihad Alwazir; lender-of-last-resort facilities; payments assets; phone company payments account; central bank profits; central bank regulation; Monetary base; Digital currencies; Central Bank digital currencies; Currencies; Commercial banks
    Date: 2022–05–06
  23. By: Ms. Prachi Mishra; Mr. Divya Kirti; Yang Liu; Jan Strasky; Soledad Martinez Peria
    Abstract: We introduce a new comprehensive announcement-level database tracking the extraordinary fiscal, monetary, prudential, and other policies that countries adopted in response to Covid-19. The database provides detailed information, including sizes where available, for 28 granular policies adopted by 74 countries during 2020. About 5,500 policy measures were announced during this period. Importantly, the database is organized and presented in a format easy for researchers to use in empirical analyses. Announcements were highly correlated across the broad fiscal, monetary, and prudential categories and at more granular levels. Advanced economies (AEs) introduced larger fiscal measures than emerging and developing economies (EMDEs) and relied primarily on large unconventional monetary policies. Bank capital requirements were relaxed widely in both AEs and EMs, while relaxation of provisioning requirements was more common among EMs. Supervisory expectations and reporting requirements were widely relaxed.
    Keywords: Monetary policy; Fiscal policy; Macroprudential policy; Covid-19; Advanced economies; policy measure; bank capital requirement; granular policy; asset purchase; Reserve requirements; Central bank policy rate; Countercyclical capital buffers; Global
    Date: 2022–06–03
  24. By: James B. Bullard
    Abstract: Inflation in the U.S. is comparable to 1970s levels, and U.S. inflation expectations could become unmoored without credible Fed action, St. Louis Fed President Jim Bullard said during a presentation in Barcelona, Spain. He noted that the Fed has reacted by taking important first steps to return inflation to the 2% target and that U.S. market interest rates have increased substantially, partially in response to promised Fed action.
    Keywords: inflation; disinflation
    Date: 2022–06–20
  25. By: Patrick A. Imam; Oumar Diallo; Steve Loris Gui-Diby
    Abstract: This paper assesses how monetary policy outcomes affect fragility. Diving into the universe of the most prominent combinations of pursued monetary policy objectives across fragile settings, we examine the relationships between monetary policy outcomes and fragility and find the combination of reduction of inflation and lower unemployment to be the one that delivers the highest payoff in terms of promoting peace and cohesion. Setting aside challenges of monetary policy transmission, results from our analysis broadly confirm the above “winning” combination, with low inflation as a primary desired outcome and low unemployment rate as a secondary one. We also carry out a series of robustness tests, which confirm our findings. Overall, our results lend credence to the importance of paying attention—in the context of reducing fragility—to monetary policy outcomes.
    Keywords: Fragility; monetary policy; objectives; monetary policy outcome; pursued monetary policy objective; monetary policy transmission; Fragile settings; outcome variable; Inflation; Unemployment rate; Exchange rates; Monetary policy frameworks; Price stabilization; Global
    Date: 2022–05–20
  26. By: Davide Furceri; Pietro Pizzuto; Emilio Colombo; Patrizio Tirelli
    Abstract: This paper investigates the role of informality in affecting the magnitude of the fiscal multiplier in a panel of 141 countries, using the local projections method. We find a strong negative relationship between the degree of informality and the size of the fiscal multiplier. This result holds irrespective of the levels of economic development and institutional quality and is robust to additional country characteristics such as trade, financial openness and exchange rate regime. In a two-sector new- Keynesian model, we rationalize this result by showing that fiscal shocks raise the relative price of official goods, shifting demand towards the informal sector. This reallocation effect increases with the level of informality, because a larger informal sector is associated with a stronger appreciation of relative prices in response to fiscal shocks. Thus, informality raises the size of the unofficial multiplier. A higher degree of non-separability between public and private goods also contributes to rationalize the lower multipliers in high-informality countries.
    Keywords: Fiscal multiplier; local projection methods; informality; DSGE model; TANK model.; high-informality country; role of informality; unofficial multiplier; government spending shock; investment goods producer; shadow economy variable; depreciation rate; Fiscal multipliers; Informal economy; Consumption; Global
    Date: 2022–05–06
  27. By: Diana Gabrielyan; Lenno Uusküla
    Abstract: We extract measures of inflation expectations from online news to build real interest rates that capture true consumer expectations. The new measure is infused to various Euler consumption models. While benchmark models based on traditional risk-free returns rates fail, models built with novel news-driven inflation expectations indices improve upon benchmark models and result in strong instruments. Our positive findings highlight the role played by the media for consumer expectation formation and allow for the use of such novel data sources for other key macroeconomic relationships.
    Keywords: Euler equation, expectations, media, machine learning
    Date: 2022
  28. By: Ana Galvao; James Mitchell
    Abstract: Economic statistics are commonly published without any explicit indication of their uncertainty. To assess if and how the UK public interpret and understand data uncertainty, we conduct two waves of a randomized controlled online experiment. A control group is presented with the headline point estimate of GDP, as emphasized by the statistical office. Treatment groups are then presented with alternative qualitative and quantitative communications of GDP data uncertainty. We find that most of the public understand there is uncertainty inherent in official GDP numbers. But communicating uncertainty information improves understanding. It encourages the public not to take estimates at face-value, but does not decrease trust in the data. Quantitative tools to communicate data uncertainty – notably intervals, density strips and bell curves – are especially beneficial. They reduce dispersion of the public’s subjective probabilistic expectations of data uncertainty, improving alignment with objective estimates.
    Keywords: data revisions, data uncertainty, uncertainty communication
    JEL: C82 D80 E01
    Date: 2021–06
  29. By: George Kapetanios; Fotis Papailias
    Abstract: This paper constructs a coincident indicator for the UK employing–for the first time–a novel set of "faster" indicators recently published by the Office for National Statistics. Most of these variables were first released during the COVID-19 pandemic with the aim of facilitating economics and social research by more timely indicators. The empirical evidence suggests that a coincident indicator based on a novel weekly dataset successfully captures the economic conditions in real-time. We further use this indicator in an out-of-sample macroeconomic nowcasting exercise targeting monthly economic growth, prices and retail sales.
    Keywords: coincident indicators, covid-19, factor models, nowcasting
    JEL: C32 C53
    Date: 2021–08
  30. By: Kirill Borissov; Mikhail Pakhnin; Ronald Wendner
    Abstract: We consider a neoclassical growth model with quasi-hyperbolic discounting under Kantian optimization: each temporal self acts in a way that they would like every future self to act. We introduce the notion of a Kantian policy as an outcome of Kantian optimization in a given class of policies. We derive and characterize a Kantian policy in the class of policies with a constant saving rate for an economy with log-utility and Cobb–Douglas production technology and an economy with isoelastic utility and linear production technology. In all cases, the Kantian saving rate is higher than the saving rate of sophisticated agents, and a Kantian path Pareto dominates a sophisticated path.
    Keywords: quasi-hyperbolic discounting, time inconsistency, Kantian equilibrium, sophisticated agents, saving rate, welfare
    JEL: C70 D15 D91 E21 O40
    Date: 2022
  31. By: Pawel Zabczyk; Marcin Kolasa; Sahil Ravgotra
    Abstract: We develop an extension of the open economy New Keynesian model in which agents are boundedly rational à la Gabaix (2020). Our setup nests rational expectations (RE) as a special case and it can successfully mitigate many “puzzling” aspects of the relationship between exchange rates and interest rates. Since the model implies an uncovered interest rate parity (UIP) condition featuring behavioral expectations, our results are also consistent with recent empirical evidence showing that several UIP puzzles vanish when actual exchange rate expectations are used (instead of realizations implicitly coupled with the RE assumption). We find that cognitive discounting dampens the effects of current monetary shocks and lowers the efficacy of forward guidance (FG), but its relative importance in mitigating the so-called FG puzzle is decreasing in openness. Finally, we show that accounting for myopia exacerbates the small open economy unit-root problem, makes positive monetary spillovers more likely, and increases the persistence of net foreign assets and the real exchange rate.
    Keywords: Monetary Policy; Exchange Rates; Bounded Rationality
    Date: 2022–06–03
  32. By: Luiz de Mello; Teresa Ter-Minassian
    Abstract: The COVID-19 pandemic has had devastating effects on lives, the economy, and the public finances worldwide, drawing attention to the need to enhance resilience to future shocks. This paper focuses on subnational governments, given their important and growing role in the provision of essential public goods and services worldwide. The paper discusses key aspects of subnational resilience, in particular the sensitivity of subnational finances to macroeconomic cycles and shocks and the availability of fiscal buffers; the main factors influencing subnational governments’ ability to provide essential services during crises; and their ability to anticipate and prepare for future shocks, especially those related to climate change. The paper also discusses policy and institutional reform options for both national and the subnational governments to strengthen subnational resilience.
    Keywords: economic resilience, fiscal federalism, intergovernmental relations, the future of public finance
    JEL: E62 H72 H77
    Date: 2022–06–30
  33. By: Weicheng Lian; Andreas Freitag
    Abstract: Inflation and unemployment rate were largely disconnected between 2000 and 2019 in advanced economies. We decompose core inflation into two parts based on the cyclical sensitivity of CPI components and document several salient facts: (i) both the cyclical and non-cyclical parts had surges across advaced economies in 2011, when unemployment rates had limited changes; (ii) the non-cyclical part had a downward trend between 2012 and 2019, which existed across countries, sectors, goods, and services; (iii) global indexes such as oil price, shipping costs, and a global supply chain pressure index do not explain the downward trend; and (iv) the cyclical part, after controlling for the impact of economic slack, also had a downward trend between 2012 and 2019. These patterns help disentangle competing explanations for the disconnect between inflation and unemployment rate. The approach has potential to help understand forces shaping price pressures during the pandemic and in the post-pandemic period ahead.
    Keywords: Inflation dynamics; Slack; Phillips curve; Missing Disinflation; Missing Reflation; pressure index; shipping cost; inflation surge; core cyclical inflation; inflation expectation; Inflation; Unemployment rate; Oil prices; Consumer price indexes; Global financial crisis of 2008-2009; Global
    Date: 2022–05–13
  34. By: Huixin Bi; Sarah Zubairy
    Abstract: We construct a database of public pension policy changes with motivation and implementation information for ten OECD countries. Structural pension reforms, motivated by long-run sustainability concerns, often come with prolonged phase-in periods. In response to pension retrenchments implemented immediately, people close to retirement stay in the work force longer. News about future pension retrenchments with implementation lags, however, is likely to lead this group to exit the labor market. This decline in the labor force participation rate is particularly strong for reforms with long lags, ones that introduce fundamental policy changes, and where citizens have lower trust in the government.
    JEL: E62 H30 H55
    Date: 2022–06
  35. By: Kuvshinov, Dmitry; Richter, Björn; Zimmermann, Kaspar
    Abstract: This paper studies the long-run evolution of bank risk and its links to the macroeconomy. Using data for 17 advanced economies, we show that the riskiness of bank assets declined materially between 1870 and 2016. But even though bank assets have become safer, the losses on these assets are associated with increasingly large output gaps. Before 1945, bank asset returns had no excess predictive power for future economic activity, while after 1945 they have outperformed non-financials as a predictor of GDP. We provide evidence linking this increasing connectedness between banks and the macroeconomy to secular increases in financial and macroeconomic leverage. JEL Classification: G01, G15, G21, E44, N20, O16
    Keywords: banking crises, bank risk, leverage, long-run trends, macro-financial linkages
    Date: 2022–06
  36. By: Lucas Menescal; José Alves
    Abstract: In this empirical study we assess both linear and nonlinear relationship between total taxation and several tax items with real per capita GDP growth rates for 43 developing countries between 1990 and 2019. We use panel data techniques to evaluate the effects of taxation on economic growth for both short and long run perspectives, and to find optimal tax threshold values. We obtain evidence of nonlinear relationships between all tax items, except for corporate income taxation, as well as an optimal value for total tax burden around 23,5% of GDP for the whole sample. When the sample is subdivided by countries’ income levels, we find threshold values for all tax items and an optimal tax burden around 23,6% of GDP for high income countries and 21,3% of GDP for low income. Our results provide support regarding the existence of nonlinearities and about policies focused on raising certain tax revenues, as a percentage of GDP, without hampering economic growth.
    Keywords: economic growth, fiscal policy, optimal taxation, tax thresholds
    JEL: E62 H21 O47
    Date: 2022
  37. By: Rueben Ellul; Germano Ruisi (Central Bank of Malta)
    Abstract: This paper describes a dynamic factor model for the Maltese economy. The model mainly serves as a tool to timely provide the Central Bank of Malta with nowcasts as well as short-term forecasts of the growth rate of the real gross domestic product, which in turn are used as an input in the forecasting process. Such forecasts reflect and incorporate the flow of information that periodically becomes available. Furthermore, the model can handle mixed frequencies that are likely to exist in large datasets used to summarise the Maltese economy and, as an additional advantage, it is able to deal with any path of missing data. This last feature is of crucial importance as data releases that are used to update the model do not take place in a synchronous way. The forecasting power of the dynamic factor model is compared with those of several other models available at the Central Bank of Malta. Overall, the results point towards a higher forecast accuracy of the dynamic factor model at very short horizons while, at longer ones, bayesian vector autoregressions appear to be more reliable.
    JEL: C53 E37
    Date: 2022
  38. By: Kim Oosterlinck; Ariane Reyns; Ariane Szafarz
    Abstract: How do major disruptive events, such as wars, affect the correlations between gold, Bitcoin, and financial assets? We address this question by estimating a dynamic conditional correlation (DCC) model before and during the 2022 Russian invasion of Ukraine. The results show that, after the outbreak of the war, the correlation between gold and stock markets dropped, confirming the diversification potential of gold during crises. The correlation between Bitcoin and oil declined as well. Meanwhile, the gold/Bitcoin correlation slightly decreased. Overall, our preliminary evidence suggests that gold and Bitcoin act as complements—rather than substitutes—for diversification purposes during international crises.
    Keywords: Bitcoin; Gold; Portfolio diversification; 2022 Russian invasion
    JEL: G11 G15 F65 E44
    Date: 2022–06–29
  39. By: Jeffrey Clemens; Philip G. Hoxie; Stan Veuger
    Abstract: We use an instrumental-variables estimator reliant on variation in congressional representation to analyze the effects of federal aid to state and local governments across all four major pieces of COVID-19 response legislation. Through September 2021, we estimate that the federal government allocated $855,000 for each state or local government job-year preserved. Our baseline confidence interval allows us to rule out estimates of less than $433,000. Our estimates of effects on aggregate income and output are centered on zero and imply modest if any spillover effects onto the broader economy. We discuss aspects of the pandemic context, which include the surprising resilience of state and local tax revenues as well as of broader macroeconomic conditions, that may underlie the small employment and stimulative impacts we estimate in comparison with previous research.
    JEL: E6 H1 H7
    Date: 2022–06
  40. By: Bahaj, Saleem (Bank of England); Piton, Sophie (Bank of England); Savagar, Anthony (University of Kent and Centre for Macroeconomics)
    Abstract: We use data on business registrations in the UK to study the response of firm entry to the Covid-19 pandemic. We find that firm entry increased during the pandemic, unlike typical recessions where firm entry declines. The rise in firm creation is driven by individual entrepreneurs creating companies for the first time, and particularly creating companies in online retail. We link the rise in firm creation to declines in brick-and-mortar retail footfall via Google mobility data, and show that it takes 10 weeks for a firm to be registered after a shock to footfall. To study the impacts of the newly created firms, we merge entry data with online job postings from Indeed and show that the rise in firm creation drives increased vacancy postings. However, we also show there is a higher probability of pandemic startups dissolving relative to pre-pandemic cohorts. Therefore, we conclude that booming firm creation aided the rapid recovery of the UK economy in the short run, but the long-run implications are more uncertain.
    Keywords: Firm dynamics; Covid-19; business dynamism; firm entry.
    JEL: E32 L25 L26
    Date: 2022–05–20
  41. By: Kirsten Abela; Ilias Georgakopoulus (Central Bank of Malta)
    Abstract: This paper outlines a stress testing framework for the household sector in Malta based on micro data. The analysis depends on granular data relating to income, expenses, and the value of liquid assets from the third wave of the Household Finance and Consumption Survey and assesses the financial resilience of households to macro-financial shocks. Households’ vulnerability is evaluated based on probabilities of default, while loan losses to banks are quantified by means of the exposure at default and loss given default. The analysis examines the impact of four adverse shocks separately: a rise in interest rates, an increase in the unemployment rate, a fall in real estate prices, and a fall in the value of liquid assets. The results indicate that: (i) households are most vulnerable to potential interest rate shocks, (ii) Maltese households have an ample amount of liquid assets that can cover their losses, and (iii) potential loans losses to banks stemming from the household sector are limited. Lastly, to simulate unfavourable economic conditions, the individual shocks are assessed simultaneously by producing two combined stress test scenarios. It is found that the combined high-scale scenario results in a higher impact on the financial vulnerability metrics, but the effects are contained.
    JEL: D14 E44 G01 G21
    Date: 2022
  42. By: Jorge Pozo (Central Reserve Bank of Peru)
    Abstract: In this work, we aim to study the implications of the interest rate cap in an emerging economy. To do so we develop a two-period banking model with entrepreneurs that undertake risky projects and with formal and informal lenders. Entrepreneurs are heterogeneous in their level of net worth. We find that a cap on the lending interest rate excludes entrepreneurs with a low level of net worth, which in turn increases the participation of the informal credit market, but also might reduce bank markups increasing entrepreneurs' welfare. As a result, our model implies that the lower the market power of banks, the smaller the likelihood that the cap might have some positive impact on aggregate credit and investment.
    Keywords: Interest rate cap; Informal credit market; monopoly banks
    JEL: E5 G21 G23
    Date: 2022–07–08
  43. By: Lise Clain-Chamosset-yvrard (UL2 - Université Lumière - Lyon 2); Xavier Raurich (University of Barcelona, Department of Economics); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: 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-fulfilling fluctuations
    Date: 2022–06–16
  44. By: Sang Truong (Department of Computer Science, Stanford University); Humberto Barreto (Department of Economics and Management, DePauw University)
    Abstract: The distribution of household income is a central concern in economics due to its strong influence on society’s well-being and social cohesion. Yet, non-expert audi-ences face serious obstacles in understanding conventional measures of inequality. To effectively communicate the extent of income inequality in the United States, we have developed a novel technique for visualizing income distribution and its dispersion over time by using U.S. household income microdata from the Current Population Survey. The result is a striking dynamic animation of income distribu-tion over time, drawing public attention and encouraging further investigation of income inequality. Detailed implementation is available at An interactive demonstration of our project is available at is/.
    Keywords: 3D, data visualization, data-driven education, Gini, survey, microdata, bootstrapping
    JEL: A2 C1 D6 E6 I3 Y1
    Date: 2022–07–08
  45. By: Holtfort, Thomas; Horsch, Andreas; Schwarz, Joachim
    Abstract: Cryptocurrencies, such as Bitcoin, have caused intense discussions during recent years among market participants according to new options (such as payment or financing alternatives) and new risks (such as price volatility) involved. Despite being considered by various actors of private households, companies, financial, monetary, and political institutions, a theory-based understanding of this innovation and knowledge of their evolution is still limited. On a basic level, this holds for differences between cryptocurrencies on the one hand and traditional currencies, like paper money, gold or special assets, on the other. On a market level, factors driving the prices of cryptocurrencies appear to be of seminal meaning, in particular against the backdrop of recent market turmoil. Therefore, the paper conducts an empirical analysis of the five biggest cryptocurrencies (measured by market capitalization) with regard to their evolutionary development, price behaviour, and their impact for managers
    Keywords: cryptocurrencies,innovation,evolutionary economics
    JEL: E42 O30
    Date: 2022
  46. By: Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Xu, Yongdeng (Cardiff Business School)
    Abstract: A common practice in estimating parameters in DSGE models is to find a set that when simulated gets close to an average of certain data moments; the model's simulated performance for other moments is then compared to the data for these as an informal test of the model. We call this procedure informal Indirect Inference, III. By contrast what we call Formal Indirect Inference, FII, chooses a set of moments as the auxiliary model and computes the Wald statistic for the joint distribution of these moments according to the structural DSGE model; it tests the model according to the probability of obtaining the data moments. The FII estimator then chooses structural parameters that maximise this probability. We show in this note via Monte Carlo experiments that the FII estimator has low bias in small samples, whereas the III estimator has much higher bias. It follows that models estimated by III will typically also be rejected by formal indirect inference tests.
    Keywords: Moments, Indirect Inference
    JEL: C12 C32 C52
    Date: 2022–07
  47. By: Mukherjee, Sacchidananda (National Institute of Public Finance and Policy)
    Abstract: Indian GST completes five years on 30 June 2022. Revenue assessment is important to assess the success of GST in protecting revenues of the Union as well as state governments. By compiling comparable revenue streams for pre- and post-GST regime, we compare the revenue performance of GST for the period 2005-06 to 2021-22RE. Our analysis shows that both the Union and state governments could not reap the benefits of GST in terms of higher revenue mobilization yet. By increasing revenue mobilization from "Non-Shareable Duties" and "Cesses on Commodities" under Union Excise Duties, the Union government could manage the revenue shortfall in GST. The GST compensation (both from the GST compensation fund as well as back-to-back loans from the Centre) helped states to sustain the revenue stream as prevalent prior to introduction of GST. In the post GST compensation regime, some states may face revenue stress. States where dependence on GST compensation (as measured by the share of GST compensation in SGST) as well as the share of SGST in own tax revenue are higher (e.g., Goa, Punjab and Chhattisgarh), they may face relatively higher revenue stress than other states.
    Keywords: Revenue assessment ; Goods and Services Tax (GST) ; Revenue protection ; GST Compensation ; India
    JEL: H20 E62 H26
    Date: 2022–07
  48. By: Patrick Moran (University of Copenhagen, Center for Economic Behavior and Inequality and IFS); Martin O\rquote Connell (University of Wisconsin-Madison and IFS); Cormac O\rquote Dea (Yale University, IFS and NBER); Francesca Parodi (Collegio Carlo Alberto, University of Turin, IFS, and CEPR)
    Abstract: We study heterogeneity in spending patterns around the time of retirement. Using rich consumption data from the Panel Study of Income Dynamics, and exploiting within-household spending variation, we systematically classify households into groups characterized by differences in consumption transitions at retirement. We decompose the overall spending changes into the contribution made by different subcomponents of consumption. We find that the households that increase their spending shift budget away from food and toward transportation, recreation, and trips. In contrast, those households for which spending falls reduce the budget share spent on transportation and food away from home, while increasing the share allocated to food at home and housing expenditures. Using a life-cycle model, we characterize the mechanisms capable of driving these observed patterns.
    Date: 2021–09

This nep-mac issue is ©2022 by Daniela Cialfi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.