nep-mac New Economics Papers
on Macroeconomics
Issue of 2024‒04‒08
twenty-two papers chosen by
Daniela Cialfi, Universita' di Teramo

  1. Endogenous job destruction risk and aggregate demand shortages By Nicolò Gnocato
  2. Aggregate uncertainty, HANK, and the ZLB By Alessandro Lin; Marcel Peruffo
  3. An Exchange Rate Policy Rule By Parrado, Eric
  4. Debt Reduction in Latin America and the Caribbean By Powell, Andrew; Panizza, Ugo
  5. Risky Firms and Fragile Banks: Implications for Macroprudential Policy By Tommaso Gasparini; Vivien Lewis; Stéphane Moyen; Stefania Villa
  6. The interpetation of 2SLS with a continuous instrument: a weighted LATE representation By Luis Antonio Fantozzi Alvarez; Rodrigo Toneto
  7. How Big is the Media Multiplier? Evidence from Dyadic News Data By Besley, Timothy; Fetzer, Thiemo; Mueller, Hannes
  8. Using Rich Lists to Study the Super-Rich and Top Wealth Inequality: Insights from Switzerland By Enea Baselgia; Isabel Z. Martínez
  9. Opting Out from Public Services and the Social Contract in Latin America By De la O, Ana; Rossel, Cecilia; Manzi, Pilar
  10. Botswana: Financial Sector Assessment Program-Technical Note on Financial Sector Safety Nets, Crisis Management, and Bank Resolution Framework By International Monetary Fund
  11. The Decision to Install a Rooftop Photovoltaic System by a Small Business: A Case Study By Schwartz, Demitrius; Batabyal, Amitrajeet
  12. Outside the box? – Women’s individual poverty risk in the EU and the role of labour market characteristics and tax-benefit policies By Popova, Daria; Gasior, Katrin; Avram, Silvia
  13. Estimating a Density Ratio Model for Stock Market Risk and Option Demand By Dalderop, J.; Linton, O. B.
  14. Movies By Michalopoulos, S; Rauh, C.
  15. Religious affiliation and child mortality in Ireland: A country-wide analysis based on the 1911 census By Pozzi, Lucia; Scalone, Francesco; Raftakis, Michail; Kennedy, Liam
  16. Applying News and Media Sentiment Analysis for Generating Forex Trading Signals By Oluwafemi F Olaiyapo
  17. Nudging the Trendsetters: Increasing Second-dose HPV Vaccination in Bogota, Colombia By Martínez Villarreal, Déborah; Díaz, Lina M.; Maldonado, Stanislao
  18. Do climate policies lead to outsourcing? Evidence from firm-level imports By Rottner, Elisa
  19. Rallying around the EU flag: Russia's invasion of Ukraine and attitudes toward European integration By Steiner, Nils D.; Berlinschi, Ruxanda; Farvaque, Etienne; Fidrmuc, Jan; Harms, Philipp; Mihailov, Alexander; Neugart, Michael; Stanek, Piotr
  20. Does increasing inequality threaten social stability? Evidence from the lab By Abigail Barr; Anna Hochleitner; Silvia Sonderegger
  21. Urban and Regional Migration Estimates, Fourth Quarter 2023 Update By Stephan D. Whitaker
  22. Systems approach to water management By Rabi Mohtar

  1. By: Nicolò Gnocato (Bank of Italy)
    Abstract: This paper studies, analytically and quantitatively, the occurrence of demand-deficient recessions due to uninsurable unemployment risk when jobs are endogenously destroyed. The ensuing unemployment fears induce a precautionary saving motive that counteracts the desire to borrow during recessions: negative productivity shocks may cause falling natural interest rates and positive unemployment gaps. Analytically, these demand-deficient recessions are shown to require a lesser degree of real wage rigidity when jobs are destroyed endogenously rather than exogenously. Quantitatively, the demand-deficient nature of supply-driven recessions can only be captured when accounting for endogenous job destruction.
    Keywords: heterogeneous agents, unemployment risk, endogenous separation, Keynesian supply shocks
    JEL: E12 E21 E24 E32 J64
    Date: 2024–03
  2. By: Alessandro Lin (Bank of Italy); Marcel Peruffo (University of Sydney)
    Abstract: We propose a novel methodology for solving Heterogeneous Agent New Keynesian (HANK) models with aggregate uncertainty and the Zero Lower Bound (ZLB) on nominal interest rates. Our efficient solution strategy combines the sequence-state Jacobian methodology in Auclert et al. (2021) with a tractable structure for aggregate uncertainty by means of a two-regime shock structure. We apply the method to a simple HANK model to show that: 1) in the presence of aggregate non-linearities such as the ZLB, a dichotomy emerges between the aggregate impulse responses under aggregate uncertainty against the deterministic case; 2) aggregate uncertainty amplifies downturns at the ZLB, and household heterogeneity increases the extent of this amplification; and 3) the effects of forward guidance are stronger when there is aggregate uncertainty.
    Keywords: monetary policy, new Keynesian model, HANK, liquidity traps, Zero Lower Bound, computational methods
    JEL: D14 E44 E52 E58
    Date: 2024–03
  3. By: Parrado, Eric
    Abstract: This paper introduces a novel monetary policy framework where the exchange rate becomes the central instrument. Using Singapore as a case study, it explores the Monetary Authority's adoption of the exchange rate as the primary tool since 1981, diverging from conventional approaches centered on interest rates or monetary aggregates. The estimated exchange rate reaction function aligns well with actual deviations, supporting the hypothesis that Singapore's forward-looking policy rule effectively responds to inflation and output volatility, especially during economic crises. This framework offers a promising alternative for countries with open economies and challenges in implementing traditional interest rate instruments.
    Keywords: exchange rate;Inflation;monetary policy rules;Singapore
    JEL: E31 E52 E58 F41
    Date: 2023–12
  4. By: Powell, Andrew; Panizza, Ugo
    Abstract: During the pandemic, public debt in Latin America and the Caribbean rose to more than 70 percent of GDP, and countries are now attempting to lower debt ratios. We analyze past debt reduction episodes and find inflation and the real interest rate were the most frequent main drivers, while higher growth, fiscal consolidation and debt restructuring were relatively rare. Interestingly, inflation episodes tended to be with independent central banks and low real interest rates, highlighting the value of monetary credibility. We find debt reduction is not associated with a rise in inequality nor in unemployment, and growth or fiscal consolidation may improve these indicators.
    Keywords: Debt;Fiscal policy;Inflation;Debt restructuring
    JEL: E62 F34 H63
    Date: 2023–12
  5. By: Tommaso Gasparini; Vivien Lewis; Stéphane Moyen; Stefania Villa
    Abstract: Increases in firm default risk raise the default probability of banks while decreasing output and inflation in US data. To rationalize the empirical evidence, we analyse firm risk shocks in a New Keynesian model where entrepreneurs and banks engage in a loan contract and both are subject to default risk. In the model, a wave of corporate defaults leads to losses on banks' balance sheets; banks respond by selling assets and reducing credit provision. A highly leveraged banking sector exacerbates the contractionary effects of firm defaults. We show that high minimum capital requirements jointly implemented with a countercyclical capital buffer are effective in dampening the adverse consequences of firm risk shocks.
    Keywords: Bank Default, Capital Buffer, Firm Risk, Macroprudential Policy
    JEL: E44 E52 E58 E61 G28
    Date: 2024
  6. By: Luis Antonio Fantozzi Alvarez; Rodrigo Toneto
    Abstract: This note introduces a novel weighted local average treatment effect representation for the two-stages least-squares (2SLS) estimand in the continuous instrument with binary treatment case. Under standard conditions, we obtain weights that are nonnegative, integrate to unity, and assign larger values to instrument support points that deviate from their average. Our representation does not require instruments to be discretized nor relies on limiting arguments, such as those used in the definition of the marginal treatment effect (MTE). The pattern of the weights also has a clear interpretation. We believe these features of the representation to be useful for applied researchers when communicating their results. As a direct byproduct of our approach, we also obtain a representation of the 2SLS estimand as a weighted average of treatment effects among ``marginal compliance'' groups, without having to resort to the threshold-crossing representation underlying the MTE construction. As an application, we consider the interpretation of ``event-study 2SLS'' specifications with continuous instruments.
    Keywords: Instrumental variables; Local average treatment effects; Event-study
    JEL: C21 C23 C26
    Date: 2024–03–12
  7. By: Besley, Timothy (London School of Economics); Fetzer, Thiemo (University of Warwick and University of Bonn); Mueller, Hannes (IAE (CSIC) and the Barcelona GSE)
    Abstract: This paper estimates the size of the media multiplier, an easily generalizable model-based measure of how far media coverage magnifies the economic response to shocks. We combine monthly aggregated and anonymized credit card activity data from 114 card issuing countries in 5 destination countries with a large corpus of news coverage in issuing countries reporting on violent events in the destinations. To define and quantify the media multiplier we estimate a model in which latent beliefs, shaped by either events or news coverage, drive card activity. According to the model, media coverage can more than triple the economic impact of an event. We document, through our model, that this effect is highly heterogenous and depends on the broader media representation of countries in each others news. We speculate about the role of the media in driving international travel patterns an.
    Keywords: media, economic behavior, news shocks JEL Classification: O1, F5, D8, F1, L8
    Date: 2023
  8. By: Enea Baselgia; Isabel Z. Martínez
    Abstract: We present a new data set we built based on Swiss rich lists going back to 1989. We show, among other things, that 60% of the super-rich are heirs—a fraction twice as large as in the US—and that wealth mobility at the very top has declined significantly. We find that top 0.01% wealth shares are higher than previous estimates based on wealth tax statistics suggest. At the same time, we argue that rich list data lead to overestimating wealth inequality. While rich lists are valuable to study the super-rich, we recommend to use reported wealth figures with caution.
    Keywords: super-rich, wealth inequality, inheritances, wealth mobility
    JEL: C81 D31 D64 J62
    Date: 2024
  9. By: De la O, Ana; Rossel, Cecilia; Manzi, Pilar
    Abstract: The seemingly upward trend in opting out from public services and the segregation of income groups in public and private education and health systems has raised concerns about the future of an already fragmented social contract in Latin America. In this chapter, we examine the evolution of the use of private education and private health insurance in selected countries during the first two decades of the 2000s. We also examine the socio-demographic correlates of the decision to opt out, and the association it has with attitudes that are relevant to understand the foundations of the social contract in the region. Overall, the evidence suggests that scholars concerns about the fragility of the social contract are justified, but with some nuances. Wealthy households are mostly opting out of the public education system, and the middle-class is split with a substantial proportion of households opting for private schools. On the other hand, opting out from public health is only prevalent among wealthy households, and even within that group the share of households who are paying for a private health insurance is much smaller than the share of households who opt for private education. For both policy domains, however, we find that people who use private services have worse evaluations of public services, express less support for the public provision of those services, and more generally, are less supportive of redistribution compared to people inside the public systems. We discuss the implications of these descriptive statistics for the sustainability of the public provision of services and the social contract.
    Keywords: opting out;Education;health;Inequality;social contract;Latin America
    JEL: I1 I2 I3
    Date: 2023–12
  10. By: International Monetary Fund
    Abstract: The financial safety net framework in Botswana is incomplete, while crisis preparedness and management structures must be expanded.2 The Bank of Botswana (BoB) lacks an emergency liquidity support mechanism for commercial banks, bank resolution and liquidation remain under the Companies Act, and there is no deposit insurance system. A 2016 TA mission3 on “Banking Sector Safety Net and Crisis Management” identified many deficiencies. To date, there has been limited progress in achieving the recommendations.
    Date: 2024–03–05
  11. By: Schwartz, Demitrius; Batabyal, Amitrajeet
    Abstract: The potential of rooftop solar power has been identified as a main driver of clean energy adoption in an urban environment. While residential solar projects have lower capacity than commercial systems, residential solar represents most of the installation base for rooftop solar projects. Rooftop solar adoption in the commercial market lags residential solar installation. To better understand why this is the case, we conduct a case study of a small, manufacturing firm. Based on the firm's energy demand and the physical attributes of its location, we study a 25-kilowatt solar array using the National Renewable Energy Laboratory’s (NREL) System Advisor Model (SAM). Our empirical study is used to evaluate the economic prospects of a rooftop solar installation project for the firm under study. This analysis sheds light on the financial ramifications of the adoption of solar panels by small, commercial firms in New York state.
    Keywords: Decision-Making, Incentive, Photovoltaic System, Solar Energy, Small Business
    JEL: D81 M21 Q42
    Date: 2023–12–09
  12. By: Popova, Daria; Gasior, Katrin; Avram, Silvia
    Abstract: Social policy debates as early as the 1950s have focused on the activation of individuals into employment. This assumes jobs with good work-ing conditions and fair pay; ignores women’s reality of part-time work, unpaid care work and the gender pay gap; and has often resulted in the weakening of traditional social protection. We study the individual poverty risk of women under the adult worker paradigm across the EU using the tax-beneï¬ t model EUROMOD and EU-SILC data. Comparing the individual poverty risk of working-age women to the benchmark of typical male workers, we highlight heterogeneity driven by women’s economic situation and job characteristics and analyse the role of the tax-beneï¬ t system in reducing the gap. The analysis shows that only slightly more than one third of women ï¬ t the adult worker model, while this is the case for almost two thirds of men. Inactive and unemployed women are particularly likely to be vulnerable to poverty, but even women with the same characteristics as male reference workers experience a higher poverty risk, highlighting the role of the gender pay gap. Beneï¬ ts cush-ion some of the gendered labour market differences but are often not generous enough for unemployed and inactive women or not sufficiently available for self-employed women. Women in atypical employment are furthermore disproportionally affected by taxes and social insurance contributions as they lead to a higher poverty rate, contributing to a larger gap compared to typical male workers.
    Date: 2024–03–21
  13. By: Dalderop, J.; Linton, O. B.
    Abstract: Option-implied risk-neutral densities are widely used for constructing forward-looking risk measures. Meanwhile, investor risk aversion introduces a multiplicative pricing kernel between the risk-neutral and true conditional densities of the underlying asset’s return. This paper proposes a simple local estimator of the pricing kernel based on inverse density weighting, and characterizes its asymptotic bias and variance. The estimator can be used to correct biased density forecasts, and performs well in a simulation study. A local exponential linear variant of the estimator is proposed to include conditioning variables. In an application, we estimate a demand-based model for S&P 500 index options using net positions data, and attribute the U-shaped pricing kernel to heterogeneous beliefs about conditional volatility.
    Keywords: Density Forecasting, Nonparametric Estimation, Option Pricing, Trade Data
    JEL: C14 G13
    Date: 2024–03–05
  14. By: Michalopoulos, S; Rauh, C.
    Abstract: Why are certain movies more successful in some markets than others? Are the entertainment products we consume reflective of our core values and beliefs? These questions drive our investigation into the relationship between a society’s oral tradition and the financial success of films. We combine a unique catalog of local tales, myths, and legends around the world with data on international movie screenings and revenues. First, we quantify the similarity between movies’ plots and traditional motifs employing machine learning techniques. Comparing the same movie across different markets, we establish that films that resonate more with local folklore systematically accrue higher revenue and are more likely to be screened. Second, we document analogous patterns within the US. Google Trends data reveal a pronounced interest in markets where ancestral narratives align more closely with a movie’s theme. Third, we delve into the explicit values transmitted by films, concentrating on the depiction of risk and gender roles. Films that promote risk-taking sell more in entrepreneurial societies today, rooted in traditions where characters pursue dangerous tasks successfully. Films portraying women in stereotypical roles continue to find a robust audience in societies with similar gender stereotypes in their folklore and where women today continue being relegated to subordinate positions. These findings underscore the enduring influence of traditional storytelling on entertainment patterns in the 21st century, highlighting a profound connection between movie consumption and deeply ingrained cultural narratives and values.
    Keywords: Movies, Folklore, Culture, Values, Entertainment, Text Analysis, Media
    JEL: N00 O10 P00 Z10 Z11
    Date: 2024–03–11
  15. By: Pozzi, Lucia; Scalone, Francesco; Raftakis, Michail; Kennedy, Liam
    Abstract: Previous studies have identified a link between religious affiliation and child mortality, yet the underlying factors that contributed to this association are not fully understood. This study investigates how religious affiliation might have influenced child mortality in early 20th- century Ireland, having controlled for socio-economic status, literacy, and place of residence at both individual and contextual levels. We utilize the 1911 IPUMS Irish census, indirect techniques, and regression analysis to examine the role of religious affiliation on child mortality. We conduct various OLS regressions, controlling for demographic factors and socioeconomic conditions at both individual and contextual levels. Our results indicate striking differences in child mortality rates among the three major religious denominations in Ireland in the early twentieth century. Catholics recorded the highest child mortality rates, followed by Church of Ireland families, while Presbyterians experienced the best child mortality outcomes. These differences are explained in part by the varying socioeconomic characteristics of each religious group but religious affiliation is also shown to have mattered. For reasons that are not altogether clear, Jewish communities (to compare one of the smaller religious denominations) had lower child mortality rates than any the three major religious denominations.
    Date: 2024
  16. By: Oluwafemi F Olaiyapo
    Abstract: The objective of this research is to examine how sentiment analysis can be employed to generate trading signals for the Foreign Exchange (Forex) market. The author assessed sentiment in social media posts and news articles pertaining to the United States Dollar (USD) using a combination of methods: lexicon-based analysis and the Naive Bayes machine learning algorithm. The findings indicate that sentiment analysis proves valuable in forecasting market movements and devising trading signals. Notably, its effectiveness is consistent across different market conditions. The author concludes that by analyzing sentiment expressed in news and social media, traders can glean insights into prevailing market sentiments towards the USD and other pertinent countries, thereby aiding trading decision-making. This study underscores the importance of weaving sentiment analysis into trading strategies as a pivotal tool for predicting market dynamics.
    Date: 2024–02
  17. By: Martínez Villarreal, Déborah; Díaz, Lina M.; Maldonado, Stanislao
    Abstract: This study investigates the effectiveness of dynamic norm nudges in promoting second-dose HPV vaccinations among trendsetters--parents who initiated the first-dose HPV vaccine for their daughters between 2017-2020. Utilizing administrative data from Bogota's Secretariat of Health in a field experiment, we measure the impact of various norm nudges, including trending, qualitative, and quantitative dynamic norms, on actual vaccination rates. Contrary to our hypothesis, dynamic norms alone fail to influence second-dose HPV vaccination rates for these trendsetters. However, the study reveals a 5.22 percent increase attributed to injunctive norms, representing a substantial 34 percent boost compared to the control groups 15.2 percent average. These findings underscore the importance of tailoring nudge strategies to the unique characteristics and preferences of the target population. This research significantly advances our understanding of norm-based interventions' efficacy in influencing minority behaviors, offering valuable insights for developing targeted and impactful public health strategies.
    Keywords: nudge;behavioral economics;health;vaccination;HPV;Field experiment;Social norms;Trendsetters
    JEL: C93 D91 I10 I12 I15 I18
    Date: 2023–12
  18. By: Rottner, Elisa
    Abstract: Rising energy prices might lead to adjustments along the supply chain and make firms outsource energy-intensive processes. This could lead to carbon leakage. I provide empirical evidence whether energy price-induced offshoring occurs using firm-level data on energy use, imports, and material purchases. I document that import shares in German industry have increased between 2009 and 2013, and that energy prices correlate positively with imports. Despite this positive correlation, I show in a quasi-experimental setup that a sudden drastic drop in electricity prices has not led firms to significantly reduce their imports or their domestic material purchases relative to an unaffected control group. This holds for very electricityintensive firms; for firms using easily tradable goods; and both for regular importers with a trade network and occasional/non-importers.
    Keywords: Offshoring, Energy Prices, Climate Policy, Manufacturing
    JEL: F14 F18 L60 Q41 Q56
    Date: 2023
  19. By: Steiner, Nils D.; Berlinschi, Ruxanda; Farvaque, Etienne; Fidrmuc, Jan; Harms, Philipp; Mihailov, Alexander; Neugart, Michael; Stanek, Piotr
    Date: 2023
  20. By: Abigail Barr (University of Nottingham); Anna Hochleitner (NHH Bergen); Silvia Sonderegger (University of Nottingham)
    Abstract: We study the relationship between inequality and social instability. While the argument that inequality can be damaging for the cohesion of a society is well established, the empirical evidence is mixed. We use a novel approach to isolate the causal relationship running from inequality to social instability. We run a laboratory experiment in which two groups interact repeatedly and have an incentive to coordinate even though coordination comes at the cost of inter-group inequality. Then, we vary the extent of the inequality implied by coordination. Our results show that increasing inequality has a destabilising effect; the disadvantaged initiate the destabilisation; and a worsening of the absolute situation of the disadvantaged exacerbates the destabilising effect of increasing inequality. These findings are in line with a simple model incorporating inequality aversion and myopic best response. Finally, we show that history matters. People respond differently to the same level of current inequality depending on their past experiences. More specifically, a history of stability facilitates the re-emergence of coordination in more unequal environments, and a sudden increase in inequality is more destabilising than a gradual increase.
    Keywords: Collective decision making; Conflict and Revolutions;Inequality
    Date: 2024–01
  21. By: Stephan D. Whitaker
    Abstract: This Data Brief updates the figures that appeared in “Urban and Regional Migration Estimates: Will Your City Recover from the Pandemic?” with data for 2023:Q4 for all series. Migration estimates enable us to track which urban neighborhoods and metro areas are returning to their old migration patterns and where the pandemic has permanently shifted migration trends.
    Keywords: urban migration; Regional migration; COVID-19 pandemic
    Date: 2024–03–25
  22. By: Rabi Mohtar
    Abstract: The fundamental role that water resources play in human development has been highlighted in multiple ways; the United Nations SDGs underline 17 different goals and over a hundred targets to be achieved by 2030. Out of 169 SDG targets, 59 were found to have direct links and synergies with the water goal SDG6 (UN Water, 2016). Careful policy making and interventions need to be implemented to avoid conflict among sectors and tradeoffs must be well established. The Integrated Water Resources Management (IWRM – since 1992) was adopted by most countries and made significant strides in formulating a good foundation for policies and synergies between stakeholders. Nevertheless, IWRM concepts need to be adaptive and revisited to achieve the Agenda 2030 targets. This policy brief introduces water management as a system of interactions between water and other vital resources including food, energy, and health among others; it presents several concepts to bring about policy coherence and quantitative protocols for a more cohesive implementation of policies and tradeoffs in the water sector and beyond.
    Date: 2023–02

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