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on Macroeconomics |
| By: | Busetto, Filippo (Bank of England) |
| Abstract: | We study the determinants of the asymmetric behaviour of monetary policy expectations in the United States, Germany and the United Kingdom. A common factor based on macroeconomic data and survey variables has predictive ability above and beyond yield based factors for negative changes in expected rates during an easing cycle, but not for increases in expected rates during a tightening in monetary policy. At the same time, macroeconomic information does not have any asymmetric effect on the conditional distribution of term premia. We complement previous findings on the asymmetric predictability of expected rates by showing that monetary policy easing during crises is predictable. This is also relevant for policymakers, as the yield curve does not always provide an accurate picture of the expected future stance of monetary policy at turning points. |
| Keywords: | Interest rates; monetary policy; macro-finance; quantile regressions |
| JEL: | E43 E44 E52 E58 |
| Date: | 2024–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1058&r=mac |
| By: | Jules H. van Binsbergen; Marco Grotteria |
| Abstract: | We examine the transmission of monetary policy shocks to the long-duration liabilities of households and firms using high-frequency variation in 10-year swap rates around FOMC announcements. We find that four weeks after the announcement mortgage rates move one-for-one with 10-year swap rates, leaving little explanatory power for mortgage concentration, bank market power, or credit risk. Variation in credit risk does materially affect monetary policy transmission to corporate bonds. Expected future short rates and term premia play a significant role in driving both mortgage rates and corporate bond yields, which explains the Federal Reserve’s increased focus on these quantities. |
| JEL: | E40 E43 E44 E5 E50 E52 E58 G21 G51 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32137&r=mac |
| By: | Saleem Bahaj (UCL); Ricardo Reis (London School of Economics (LSE); Centre for Macroeconomics (CFM)) |
| Abstract: | China’s current account transactions use an offshore international currency, the CNH, that co-exists as a parallel currency with the mainland domestic currency, the CNY. The CNH is freely used, but by restricting its exchange for CNY, the authorities can enforce capital controls. Sustaining these controls requires tight management of the money supply and liquidity to keep the exchange rate between the dual currencies pegged. After describing how the central bank implements this system, we find a rare instance of identified, exogenous, transitory increases in the supply of money and estimate by how much they depreciate the exchange rate. Theory and evidence show that elastically supplying money in response to demand shocks can maintain a currency peg. Liquidity policies complement these monetary interventions to deal with the pressure on the peg from financial innovation. Finally, deviations from the CNH/CNY peg act as a pressure valve to manage the exchange rate between the yuan and the US dollar. |
| Keywords: | Chinese monetary policy, Gresham’s law, Goodhart’s law, Money markets, RMB |
| JEL: | F31 F33 E51 G15 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:240&r=mac |
| By: | Liutang Gong (Guanghua School of Management and LMEQF, Peking University; School of International Economics and Management, Beijing Technology And Business University); Chan Wang (School of Finance, Central University of Finance and Economics); Liyuan Wu (Institute of World Economics and Politics, Chinese Academy of Social Science); Heng-fu Zou (Economics and Management School, Wuhan University) |
| Abstract: | In the literature on optimal monetary policy in open economies, the presence of local-currency pricing provides a rationale for targeting CPI inflation rather than PPI inflation. In this paper, we reexamine this conclusion by incorporating international trade in intermediate inputs into Engel (2011). We find that the cooperative monetary policymaker should target the final-goods output gaps, the PPI inflation rates at both stages of production, the currency misalignments at both stages of production, and the vertical relative price gaps. Welfare analysis shows that the monetary policymaker should target the weighted average intermediate-goods PPI (WPPI) inflation rather than CPI inflation for most combinations of price stickiness at both stages of production. |
| Date: | 2023–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:cuf:wpaper:617&r=mac |
| By: | Guimarães, Luis; Lourenço, Diogo |
| Abstract: | What is the impact of replacing conditional welfare programs with a Universal Basic Income (UBI) that costs the same? We answer this question using a general-equilibrium model with incomplete markets that accounts for three imperfections of conditional programs: incomplete take-up, illegitimate transfers, and administrative costs. We find that these imperfections, particularly incomplete take-up, substantially affect welfare. We also find that replacing the conditional programs with a UBI would increase capital stock, employment, and output, and lower inequality. Yet, the welfare effect of a UBI is not clear-cut. Aggregate welfare would fall in our benchmark, but a moderately larger UBI would be preferable to an equal expansion of conditional programs, especially for the least educated. |
| Keywords: | Universal Basic Income; Welfare System; Take-up; Illegitimate Transfers; Administrative Costs; Labor Market Flows. |
| JEL: | D52 E21 H24 J21 J64 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119964&r=mac |
| By: | Martin Beraja; Nathan Zorzi |
| Abstract: | Stimulus checks have become an increasingly important policy tool in recent U.S. recessions. How does the households' marginal propensity to spend (MPX) vary as checks become larger? To quantify this size-dependence in the MPX, we augment a canonical model of durable spending by introducing a smooth adjustment hazard. We discipline this hazard by matching a rich set of micro moments. We find that the MPX declines slowly with the size of checks. In contrast, the MPX is flatter in a purely state-dependent model of durables, and declines sharply in a two-asset model of non-durables. Finally, we embed our spending model into an open-economy heterogeneous-agent New-Keynesian model. In a typical recession, a large check of $2, 000 increases output by 25 cents per dollar, compared to 37 cents for a $300 check. Large checks thus remain effective but extrapolating from the response out of small checks overestimates their impact. |
| JEL: | C0 E0 H0 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32080&r=mac |
| By: | Girstmair, Stefan |
| Abstract: | This paper investigates the importance of including data on new housing supply in Dynamic Stochastic General Equilibrium (DSGE) models in forecasting the Great Financial Crisis (GFC), focusing on the U.S. While existing models have added a financial sector and real estate sector, they have largely overlooked housing supply. I develop an extended DSGE model that includes both the financial sector and endogenous housing supply and show that forecasting accuracy significantly improves when data on new houses is included. Robustness checks confirm the importance of these additions to the model. The findings highlight the necessity of combining model extension and housing supply data for accurate forecasting during economic crises. I identify negative housing demand shocks and escalating adjustment costs as primary drivers of the GFC, propagating into the real economy and accelerating through the financial sector. Additionally, this paper addresses the zero lower bound challenge in modeling forward guidance using a regime change approach. JEL Classification: E17, E32, E37, R21, R31 |
| Keywords: | Bayesian estimation, DSGE, housing, model projection |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242895&r=mac |
| By: | Goldfayn-Frank, Olga; Kieren, Pascal; Trautmann, Stefan |
| Abstract: | In macroeconomic surveys, inflation expectations are commonly elicited via density forecasts in which respondents assign probabilities to pre-specified ranges in inflation. This question format is increasingly subject to criticism. In this study, we propose a new method to elicit inflation expectations which is based on prior decision theoretic research. We demonstrate that it leads to well-defined expectations with central tendencies close to the corresponding point forecasts and to lower forecast uncertainty than density forecasts. In contrast to currently employed methods, the approach is robust to differences in the state of the economy and thus allows comparisons across time and across countries. Additionally, the method is not very time consuming and portable in the sense that it can be applied to different macroeconomic measures. |
| Keywords: | Inflation expectations; measurement; surveys |
| Date: | 2024–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0742&r=mac |
| By: | Edouard Cottin-Euziol (LC2S - Laboratoire caribéen de sciences sociales - CNRS - Centre National de la Recherche Scientifique - UA - Université des Antilles); Hassan Bougrine (Laurentian University); Louis-Philippe Rochon (Laurentian University) |
| Abstract: | Stock–flow consistent (SFC) modelling and monetary circuit theory (MCT) have many similarities. However, an important difference concerns the reflux phase, during which the credits issued by banks are repaid. This phase is constitutive of MCT models, but does not generally appear explicitly in SFC models. The authors propose here to develop an SFC model in which the bank loans issued at the beginning of a period are explicitly repaid at the end of it. The repayment of long-term bank loans financing investments will then represent a leakage outside the monetary circuit and affect the level of aggregate demand and the dynamics of the model. The authors show that considering these repayments could have a lasting effect on corporate profits, corporate indebtedness, and growth of production. This result suggests that it could be interesting to focus more on the reflux phase within SFC models, taking inspiration from MCT. |
| Keywords: | monetary circuit, stock–flow consistency, reflux, bank loans |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04420693&r=mac |
| By: | Bøler, Esther Ann; Moxnes, Andreas; Ulltveit-Moe, Karen Helene |
| Abstract: | This paper makes use of a reform that allowed firms to use patents as stand-alone collateral, to estimate the magnitude of collateral constraints and to quantify the aggregate impact of these constraints on misallocation and productivity. Using matched firm-bank data for Norway, we find that bank borrowing increased for firms affected by the reform relative to the control group. We also find an increase in the capital stock, employment and innovation as well as equity funding. We interpret the results through the lens of a model of monopolistic competition with potentially collateral constrained heterogeneous firms. Parameterizing the model using well-identified moments from the reduced form exercise, we find quantitatively large gains in output per worker in the sectors in the economy dominated by constrained (and intangible-intensive) firms. The gains are primarily driven by capital deepening, whereas within-industry misallocation plays a smaller role. |
| Keywords: | intangible capital; patents; credit constraints; misallocation; productivity |
| JEL: | G32 L25 O34 O47 |
| Date: | 2023–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121322&r=mac |
| By: | Dario Guarascio; Alessandro Piccirillo; Jelena Reljic |
| Abstract: | This study conducts a meta-analysis to assess the effects of robotization on employment and wages, compiling data from 33 studies with 644 estimates on employment and a subset of 19 studies with 195 estimates on wages. We identify a publication bias towards negative outcomes, especially concerning wages. After correcting for this bias, the actual impact appears minimal. Thus, concerns about the disruptive effects of robots on employment and the risk of widespread technological unemployment may be exaggerated or not yet empirically supported. While this does not preclude that robots will be capable of gaining greater disruptive potential in the future or that they are not already disruptive in specific contexts, the evidence to date suggests their aggregate effect is negligible. |
| Keywords: | robots; employment; wages; meta-analysis; publication bias |
| JEL: | J21 J23 J24 J31 O33 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp245&r=mac |
| By: | Serap Sagir (Middle East Technical University, Department of Economics, Ankara, Türkiye); Çağaçan Değer (Ege University, Department of Economics, İzmir, Türkiye); Durdane Sirin Saracoglu (Middle East Technical University, Department of Economics, Ankara, Türkiye) |
| Abstract: | In this paper we investigate the relationship between mother’s education level and the development of young children in Turkey using representative microdata from the 2018 Turkey Demographic and Health Survey (TDHS). The data include detailed information about the developmental status of young children of 36-to-59 months old. We find that only when the mother has at least a high school level education, there is a positive impact on the child’s developmental status as summarized the Early Childhood Development (ECD) index, which is an index constructed based on the child’s four developmental domains. We also show that the household’s wealth is also positively associated with the child’s developmental status, particularly in the socio-emotional and the learning readiness domains. |
| Keywords: | early childhood development, human capital accumulation, overlapping generations modeling, general equilibrium, economic growth, policy simulation |
| JEL: | C61 J24 O11 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:2304&r=mac |
| By: | International Monetary Fund |
| Abstract: | Growth slowed considerably following Russia’s invasion of Ukraine, reflecting disruptions in global value chains, significant increases in energy and commodity prices, an erosion in real wages, and a necessary tightening in monetary policy. Growth is expected to pick up in 2024, led by consumption and fixed investment—as inflation fades and real income recovers—supported by net exports. Nevertheless, over the medium term, GDP is not expected to reach the levels consistent with its pre-pandemic trend. Inflation peaked in 2022 and is projected to meet its target by early 2025. Risks are tilted to the downside for activity and to the upside for inflation. |
| Date: | 2024–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:2024/028&r=mac |
| By: | Emmanuel Caiazzo; Leonardo Gambacorta; Tommaso Oliviero; Hyun Song Shin |
| Abstract: | It is well documented that financial firms display a larger corporate pay-out propensity than non-financial firms. By using an international sample of listed firms from advanced economies, we show that this difference vanishes after accounting for heterogeneity among corporations in their financial leverage, stock market liquidity and share-ownership by institutional investors. A theoretical model that builds on Acharya et al. (2017) provides a framework to analyze the effect of corporate structure on payout decisions and rationalizes the economic mechanisms behind our empirical results. |
| Keywords: | corporate payout policy, dividends, financial firms, risk-shifting |
| JEL: | G21 G35 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:1168&r=mac |
| By: | Brendan K Beare; Massimo Franchi; Phil Howlett |
| Abstract: | In this article we provide a complete description of the set of all solutions to an autoregressive law of motion in a finite-dimensional complex vector space. Every solution is shown to be the sum of three parts, each corresponding to a directed flow of time. One part flows forward from the arbitrarily distant past; one flows backwards from the arbitrarily distant future; and one flows outward from time zero. The three parts are obtained by applying three complementary spectral projections to the solution, these corresponding to a separation of the eigenvalues of the autoregressive operator according to whether they are inside, outside or on the unit circle. We provide a finite-dimensional parametrization of the set of all solutions. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:syd:wpaper:2024-01&r=mac |
| By: | Babina, Tania (Columbia University); Bahaj, Saleem (Bank of England); Buchak, Greg (Stanford University); De Marco, Filippo (Bocconi University); Foulis, Angus (Bank of England); Gornall, Will (University of British Columbia); Mazzola, Francesco (ESCP Business School); Yu, Tong (Imperial College London and Financial Conduct Authority) |
| Abstract: | Open banking (OB) empowers bank customers to share transaction data with fintechs and other banks. 49 countries have adopted OB policies. Consumer trust in fintechs predicts OB policy adoption and adoption spurs investment in fintechs. UK microdata shows that OB enables: i) consumers to access both financial advice and credit; and ii) small and medium‑sized enterprises to establish new fintech lending relationships. In a calibrated model, OB universally improves welfare through entry and product improvements when used for advice. When used for credit, OB promotes entry and competition by reducing adverse selection, but higher prices for costlier or privacy-conscious consumers partially offset these benefits |
| Keywords: | Open banking; entrepreneurship; fintech; financial innovation; data access; data rights; data portability; Big Data; financial regulation; financial sector; banks |
| JEL: | G21 G28 |
| Date: | 2024–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1059&r=mac |
| By: | Bryan T. Kelly; Semyon Malamud; Mohammad Pourmohammadi; Fabio Trojani |
| Abstract: | We introduce a novel shrinkage methodology for building optimal portfolios in environments of high complexity, where the number of assets is comparable to or larger than the number of observations. Our universal portfolio shrinkage approximator (UPSA) is given in closed form, is easy to implement, and improves upon existing shrinkage methods. It exhibits an explicit two-fund separation, complementing the Markowitz portfolio with an optimal complexity correction. UPSA does not annihilate the low-variance principal components (PCs) of returns; instead, it optimally reweighs them and produces a stochastic discount factor that substantially improves on its feasible PC-sparse counterparts. |
| JEL: | C1 C14 C53 C55 C58 G10 G11 G14 G17 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32004&r=mac |
| By: | Enriqueta Aragonès |
| Abstract: | There are many instances in which several elections are held at the same time. Different regional elections in a given country, different state elections in a federation, elections for the European Union parliament in each one of the countries. In addition, we can also observe that elections for different government levels take place simultaneously: elections for a central government and for regional governments in a given country, elections for a federal government and for state governments in a federation, and in some instances even the elections for the European Union parliament coincide with other elections, such as regional or municipal, in some countries (Callander 2005 and Fabre 2010). |
| Keywords: | simultaneous elections, state-wide parties, sub-national parties |
| JEL: | D72 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1425&r=mac |
| By: | Lorenz K.F. Ekerdt; Kai-Jie Wu |
| Abstract: | This paper studies firm diversification over 6-digit NAICS industries in U.S. manufacturing. We find that firms specializing in fewer industries now account for a substantially greater share of production than 40 years ago. This reallocation is a key driver of rising industry concentration. Specialized firms have displaced diversified firms among industry leaders—absent this reallocation concentration would have decreased. We then provide evidence that specialized firms produce higher-quality goods: specialized firms tend to charge higher unit prices and are more insulated against Chinese import competition. Based on our empirical findings, we propose a theory in which growth shifts demand toward specialized, high-quality firms, which eventually increases concentration. We conclude that one should expect rising industry concentration in a growing economy. |
| JEL: | L25 O33 F14 L11 O47 |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:24-06&r=mac |