nep-mac New Economics Papers
on Macroeconomics
Issue of 2023‒09‒25
ten papers chosen by
Daniela Cialfi, Universita' di Teramo

  1. Same old song: On the macroeconomic and distributional effects of leaving a Low Interest Rate Environment By Alberto Botta; Eugenio Caverzasi; Alberto Russo
  2. Capital Risk, Fiscal Policy, and the Distribution of Wealth By Andrea Modena; Luca Regis
  3. The cause and Interaction between banking crises and the business cycle By Bodunrin, Olalekan Samuel
  4. Oligopolistic Competition, Price Rigidity, and Monetary Policy By Kozo Ueda; Kota Watanabe
  5. ‘Relabelling’ of individual retirement pension in Finland: application and behavioural responses using Finnish register data. By Kanabar, Ricky; Nivalainen, Satu; Järnefelt, Noora
  6. Framing the change: analysing employment change, (in)adequacy, and (de)feminization in Cameroon's tertiary firms By Yselle Malah Kuete
  7. Comments on the 2023 Draft Merger Guidelines: A Labor Market Perspective By Berger, David; Hasenzagl, Thomas; Herkenhoff, Kyle; Mongey, Simon; Posner, Eric A.
  8. The socio-economics of the 2023 fuel subsidy removal in Nigeria By Evans, Olaniyi; Nwaogwugwu, Isaac; Vincent, Olusegun; Wale-Awe, Olawale; Mesagan, Ekundayo; Ojapinwa, Taiwo
  9. Digital Real Estate in the Metaverse: An Empirical Analysis of Retail Investor Motivations By Lennart Ante; Friedrich-Philipp Wazinski; Aman Saggu
  10. Vietnam's energy security in 2023 global coal and LNG markets By Minh Ha-Duong

  1. By: Alberto Botta (School of Accounting, Finance and Economics, University of Greenwich, London, UK); Eugenio Caverzasi (Department of Economics, Università degli Studi dell’Insubria, Varese, Italy); Alberto Russo (Department of Economics and Social Sciences, Università Politecnica delle Marche, Ancona, Italy and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: This paper analyzes the macroeconomic and distributional implications of central banks’decisions to raise interest rates after a prolonged period at near the Zero Lower Bound (ZLB). The main goal of our study is to assess the interaction between monetary policy, inequality, and financial fragility, in a financialized economic system. Financialization is here portrayed as the presence in the economy of complex financial products, i.e., assetbacked securities, produced via the securitization of banks’ loans. We do so in the context of a hybrid Agent-Based Model (ABM). We first compare the prevailing macroeconomic and financial features of a low interest rate environment (LIRE) with respect to a “Great Moderation”(GM)-like setting. As expected, we show that LIRE tends to stimulate faster growth and higher employment, and to reduce income and wealth inequality, as well as (poor) households’ indebtedness. Consistent with existing empirical literature, this comes at the cost of higher inflation and some signs of financial system’s fragility, i.e., lower banks’ profitability and Capital Adequacy Ratio (CAR), and higher “search for risk” given by credit extension to poorer households. We then show that increases in the central bank’s policy rate, as motivated by the central bank’s willingness to reduce inflation, effectively curb price dynamics and accomplish with central bank’s inflation targeting mandate. Higher interest rates also improve commercial banks’ CAR and profitability. However, they also cause a pronounced increase in non-performing loans (stronger tan what possibly observed in a GM scenario) and some worrisome macro-financial dynamics. In fact, higher interest rates give rise to higher households’ and overall economy indebtedness as allowed by wealthier households’ demand for high-yield complex financial products and mounting securitization. We finally show how financialization structurally changes the functioning of the economy and the behavior of central banks. Financialization actually contributes to create a (private sector) debt-led economy, which becomes structurally more resistant to central bank’s attempts to control inflation. Central bank’s reaction in terms of higher interest rates could likely come with perverse distributional consequences.
    Keywords: Low interest rate environment, Contractionary monetary policy, Securitization
    JEL: E24 E44 E52
    Date: 2023
  2. By: Andrea Modena; Luca Regis
    Abstract: We develop a continuous-time model of a production economy where households face leverage constraints, uninsurable labour income shocks, and capital depreciation risk. We derive a numerical approximation of the model’s competitive equilibrium and compare it with a benchmark economy with no capital risk. Introducing capital risk generates a positive risk premium while fostering aggregate capital accumulation and safe asset demand. At the same time, it exacerbates wealth inequality by making poor households’ net worth more volatile than their wealthier peers. In this framework, we investigate the impact of fiscal policy on households’ wealth distribution and welfare. Fiscal policy influences the equilibrium wealth distribution by changing the risk premium. This channel unevenly impacts households’ consumption and asset allocation decisions, depending on their wage and net worth levels. Tax cuts on risky capital may benefit wealthy or poor households, depending on whether they are financed by raising taxes on safe assets or labour.
    Keywords: fiscal policy, incomplete market, portfolio choices, wealth distribution
    JEL: C61 E21 E62 G11
    Date: 2023–08
  3. By: Bodunrin, Olalekan Samuel
    Abstract: This paper analyzed the interplay between banking crises and the business cycle behaviour and its implication for the wider macroeconomy. Firstly, the business cycle of the economies was estimated using Hodrick & Prescott’s (1997) filter as a standard smoothing technique. Next, the turning points were identified, and the cycle was dated using the Harding & Pagan (2003) algorithm, an extension from Bry and Boschan (1971), with the aid of the Philippe Bracke (2011) SBBQ Stata module. Finally, after identifying the peak and trough phases, the distance between the duo was further labelled, and the entire stretch of the economies’ business cycle was classified into six phases, namely recovery, expansion, peak, recession, depression, and trough. The aim is; to ascertain the reactivity between banking crises and the individual business cycle phases and their implications for the aggregate economy. This objective is in addition to; exploring the relationship between banking crises and the cyclical behaviour of the business cycle; ascertaining the probability of banking crises induced by the cyclical behaviour of the business cycle; and establishing the gaps generated by the interactions between banking crises and; the output, the industrial production and the credit gaps. The panel vector autoregressive (pVAR) model was employed. Also, the logistic regression model and the Harding & Pagan (2003) concordance index were applied with diagnostic tests and the adaptive LASSO for robustness checks. The result found three broader categories of banking crises. These are banking crises made possible by; liquidity pressure during economic expansions, excessive leverage(boom and bust) and economic downturns. Banking crises severely contracted the business cycle, via the trough, depression, and recovery phases, with feedback mechanisms lasting about four years. The business cycle caused banking crises in its extreme region- the topmost peak phase, the lowest trough phase, and the recovery phase. The result further confirmed that banking crises naturally occur during the Depression, Recovery, and Trough phases and weakly on the Expansion phases (in that order). Nations slipped from peak to trough during banking crises, but none moved from trough to peak. These results emphasised the importance of macro-financial linkages and their vulnerabilities, suggesting need for policy synergy and considering the business cycle phases in designing and implementing economic policies.
    Keywords: Banking crises, Business Cycle
    JEL: E32 G21 N1 N14
    Date: 2023–01–14
  4. By: Kozo Ueda (Waseda University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo)
    Abstract: This study investigates how strategic and heterogeneous price setting influences the real effect of monetary policy. Japanese data show that firms with larger market shares exhibit more frequent and larger price changes than those with smaller market shares. We then construct an oligopolistic competition model with sticky prices and asymmetry in terms of competitiveness and price stickiness, which shows that a positive cross superelasticity of demand generates dynamic strategic complementarity, resulting in decreased price adjustments and an amplified real effect of monetary policy. Whether a highly competitive firm sets its price more sluggishly and strategically than a less competitive firm depends on the shape of the demand system, and the empirical results derived from the Japanese data support Hotelling’s model rather than the constant elasticity of substitution preferences model. Dynamic strategic complementarity and asymmetry in price stickiness can substantially enhance the real effect of monetary policy.
    Keywords: strategic complementarity; price stickiness; real rigidity; competition
    JEL: D43 E31 E52 L11
    Date: 2023–07
  5. By: Kanabar, Ricky; Nivalainen, Satu; Järnefelt, Noora
    Abstract: Using rich Finnish population level registers, we examine the impact of fusing a flexible early retirement pathway with a more stringent pathway, without changing eligibility conditions, socalled ‘relabelling’, on individual application behaviour. Our findings show that among affected cohorts the likelihood of applying for (successfully claiming) disability-related early retirement declined by 1.8 (1.5) percentage points equivalent to a relative drop of approximately 37% (39%) following the reform. Individuals with below tertiary level education and stronger lifetime labour market attachment exhibit a stronger behavioural response to the reform. We find tentative evidence of programme substitution to early retirement pathways designed to keep individuals in the labour market albeit on a part time basis. Our findings suggest that social norms and lack of awareness associated with early retirement pathways can strongly influence application behaviour even when eligibility conditions remain unchanged, offering policymakers novel ways to extend working lives.
    Date: 2023–09–08
  6. By: Yselle Malah Kuete
    Abstract: Cameroon is an example of a developing country where the transition from agriculture to services has defied standard patterns seen in developed countries. While prior research has explored this shift's impact on economic growth, its effects on women's representation in the labour market have been overlooked. This study addresses this gap by examining how changes in the tertiary sector affect women's employment.
    Keywords: Female labour force participation, Employment, Services, Decomposition, Cameroon
    Date: 2023
  7. By: Berger, David (Duke University); Hasenzagl, Thomas (University of Minnesota); Herkenhoff, Kyle (University of Minnesota); Mongey, Simon (Federal Reserve Bank of Minneapolis); Posner, Eric A. (University of Chicago)
    Abstract: The DOJ and FTC clarify the role of labor market power ("monopsony") in the 2023 draft merger guidelines. The draft states in Guideline 11 that the structural presumption threshold applies to labor market concentration, while also suggesting that a stricter threshold may be warranted in labor markets. The post-merger Herfindahl-Hirschman Index (HHI) that defines a highly concentrated market is 1800, which is lower, and so stricter, than the 2010 guidelines. We provide five comments on the draft guidelines based on our recent work Berger, Hasenzagl, Herkenhoff, Mongey, and Posner (2023). (1) Explicitly addressing monopsony in the draft guidelines is grounded in economic theory and empirical research. (2) Workers benefit from the lower threshold for highly concentrated markets. (3) The narrow nature of labor markets and high degree of monopsony power in the U.S. may warrant an even lower threshold. For example, merger simulations indicate that workers would benefit if the agencies lowered the HHI threshold further—to 1500 or 1000. (4) Worker welfare is central to the 2023 draft guidelines but the language is not always clear about this. The guidelines should make clear that degradations of "worker welfare" or "total compensation" indicate anticompetitive effects. (5) Dominant firms that can slow wage growth – but not freeze or cut wages – are subject to Guideline 7.
    Keywords: mergers, monopsony, labor market power, concentration
    JEL: J42 G34 K21 L4
    Date: 2023–08
  8. By: Evans, Olaniyi; Nwaogwugwu, Isaac; Vincent, Olusegun; Wale-Awe, Olawale; Mesagan, Ekundayo; Ojapinwa, Taiwo
    Abstract: The removal of fuel subsidy in Nigeria in 2023 has triggered a profound shift with far-reaching implications across economic, social, and environmental spheres. This study probes into the complex web of consequences arising from this drastic policy transformation, examining both the direct and indirect effects on the Nigerian society and economy. While the reallocation of resources from subsidies to vital sectors like healthcare, transport and education holds positive transformative potentials, ensuring effective utilization and equitable distribution of these funds warrants meticulous consideration. Achieving tangible improvements in essential services without unintentional negative consequences emerges as a central challenge. Drawing from historical precedents of subsidy removal attempts in Nigeria, the study underscores the importance of managing public sentiment and stakeholder reactions. The complexity arising from the interplay of economic, political, environmental, and societal factors necessitates a holistic approach. The study highlights the significance of informed decision-making to mitigate negative short-term impacts, harness long-term gains, and safeguard the vulnerable segments of the population. Policymakers must adopt a holistic approach that balances economic efficiency, social welfare, environmental sustainability, and inclusive growth. By addressing these multidimensional implications and drawing insights from both domestic and international experiences, Nigeria can navigate the complexities of subsidy removal effectively and work towards a prosperous and egalitarian society.
    Keywords: Fuel subsidy removal; socio-economic implications
    JEL: Q4 Q41 Q42 Q43
    Date: 2023–08–22
  9. By: Lennart Ante; Friedrich-Philipp Wazinski; Aman Saggu
    Abstract: This paper investigates retail investor motivations for digital real estate ownership in the crypto-metaverse. Utilizing a detailed financial behavior survey of metaverse landowners' intrinsic and extrinsic motivations, we apply principal components analysis to uncover four distinct motivational groups: (1) Aesthetics and Identity, (2) Social and Community, (3) Speculation and Investment, and (4) Innovation and Technology. Our findings reveal that age, education, investment knowledge, risk-taking, and impulsivity significantly influence investor group membership. This research provides valuable insights to investors and developers, underscoring the potential of a platform to attract retail investors with speculative intentions, engagement longevity, and passive or active trading characteristics, contingent on unique crypto-metaverse attributes.
    Date: 2023–08
  10. By: Minh Ha-Duong (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique)
    Keywords: energy crisis, international markets, vietnam
    Date: 2023–04–24

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