nep-mon New Economics Papers
on Monetary Economics
Issue of 2020‒11‒02
23 papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. Exchange rates and the information channel of monetary policy By Holtemöller, Oliver; Kriwoluzky, Alexander; Kwak, Boreum
  2. Disinflations and income distribution By Laura Gómez-Acevedo; Marc Hofstetter
  3. Formation of inflation expectations: Does macroeconomic and policy environment matter? By Eda Gulsen; Hakan Kara
  4. Should Emerging Economies Embrace Quantitative Easing during the Pandemic? By Gianluca Benigno; Jonathan Hartley; Alicia Garcia Herrero; Alessandro Rebucci; Elina Ribakova
  5. Bank Capital and Monetary Policy Transmission in India By Muduli, Silu; Behera, Harendra
  6. Foreign Exchange Intervention and Financial Stability By Pierre-Richard Agénor; Timothy P. Jackson; Luiz Pereira da Silva
  7. Bank Capital and Monetary Policy Transmission in India By Muduli, Silu; Behera, Harendra
  8. Thrift and Credit Cooperative Lending Channel under Prolonged Low Interest Rates: The Case of Thailand By Kovit Charnvitayapong
  9. The FR-BDF Model and an Assessment of Monetary Policy Transmission in France, Working Paper Series no. 736, Banque de France By Matthieu Lemoine; Harri Turunen; Mohammed Chahad; Antoine Lepetit; Anastasia Zhutova; Pierre Aldama; Pierrick Clerc; Jean-Pierre Laffargue
  10. Unfolding the monetary policy rule in Ghana: quantile-based evidence within time-frequency framework By Akosah, Nana; Alagidede, Imhotep; Schaling, Eric
  11. Proxy SVAR identification of monetary policy shocks: MonteCarlo evidence and insights for the US By Herwartz, Helmut; Rohloff, Hannes; Wang, Shu
  12. An Analysis of International Shock Transmission: A Multi-level Factor Augmented TVP GVAR Approach By Bahar Sungurtekin Hallam
  13. COVID-19 and the Future of Quantitative Easing in the Euro Area: Three Scenarios with a Trilemma By Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
  14. Money Demand: The Guide to Monetary Policy in Russia, 1997-2020 By Olga Khon
  15. Measuring the Effect of Unconventional Policies on Stock Market Volatility By Demetrio Lacava; Giampiero M. Gallo; Edoardo Otranto
  16. The Corona Crisis - is this the time for Helicopter Money? By Marc C. Adam; Robert Gold
  17. Microeconomic foundation of the Phillips curve By Tanaka, Yasuhito
  18. A silent revolution: How central bank statistics have changed in the last 25 years By Riccardo De Bonis; Matteo Piazza
  19. Effects of eligibility for central bank purchases on corporate bond spreads By Taneli Mäkinen; Fan Li; Andrea Mercatanti; Andrea Silvestrini
  20. Break-even inflation rates: the Italian case By Alberto Di Iorio; Marco Fanari
  21. US shocks and the uncovered interest rate parity By Mengheng Li; Bowen Fu
  22. A Macroeconomic Theory of Banking Oligopoly By Dong, Mei; Huangfu, Stella; Sun, Hongfei
  23. Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism By Qichun He; Yulei Luo; Jun Nie; Heng-fu Zou

  1. By: Holtemöller, Oliver; Kriwoluzky, Alexander; Kwak, Boreum
    Abstract: We disentangle the effects of monetary policy announcements on real economic variables into an interest rate shock component and a central bank information shock component. We identify both components using changes in interest rate futures and in exchange rates around monetary policy announcements. While the volatility of interest rate surprises declines around the Great Recession, the volatility of exchange rate changes increases. Making use of this heteroskedasticity, we estimate that a contractionary interest rate shock appreciates the dollar, increases the excess bond premium, and leads to a decline in prices and output, while a positive information shock appreciates the dollar, decreases prices and the excess bond premium, and increases output.
    Keywords: monetary policy,central bank information shock,identication through heteroskedasticity,high-frequency identication,proxy SVAR
    JEL: C36 E52 E58
    Date: 2020
  2. By: Laura Gómez-Acevedo; Marc Hofstetter
    Abstract: Most countries in the world have brought inflation down to very low rates. While there is broad consensus regarding the fact that polices aimed at bringing down inflation have adverse consequences on aggregate output and unemployment, at least in the short run, we know little about the distributional impact of disinflations. We find that along with disinflation, the income distribution tends to worsen: the Gini increases and the income share of those at the top of the income distribution significantly increases. We discuss the implications of these findings for monetary policy.
    Keywords: Monetary Policy; Central Banks; Inflation; Disinflation; Income distribution
    JEL: E31 E32 E43 E52 E58 D31
    Date: 2020–10–15
  3. By: Eda Gulsen (Central Bank of Turkey); Hakan Kara (Bilkent University)
    Abstract: This paper investigates the changing behavior of inflation expectations in response to the macroeconomic and policy environment. Using a panel of professional forecasters covering thirteen years of inflation targeting period from Turkey, we present evidence on the behavioral shifts in the inflation expectations associated with evolving macroeconomic and policy performance. We use a unique survey with the feature of including matched policy rate and fixed-horizon inflation expectations at the individual level, therefore enabling to estimate the impact of monetary policy surprises on inflation expectations without reliance on strong identifying assumptions. Moreover, we employ a novel technique where direct feedback from survey respondents is used to determine the baseline empirical model governing expectations dynamics. Interpretation of the empirical findings joint with the direct feedback results from the survey indicate that the anchoring power of inflation targets depend on the policy performance. The weights attached to inflation targets in forming expectations are strongly associated with the size of the inflation deviation from the targets. When the targets no longer serve as a strong anchor, the survey participants assign increasingly higher weight to past inflation and the relationship between exchange rates and inflation expectations becomes stronger. Overall, our results imply that expectations behavior display significant and rapid shifts with the underlying economic and policy performance.
    Keywords: Inflation expectations; Monetary policy; Inflation; Survey data.
    JEL: C51 C53 E31 E37 E58
    Date: 2020–10
  4. By: Gianluca Benigno; Jonathan Hartley; Alicia Garcia Herrero; Alessandro Rebucci; Elina Ribakova
    Abstract: Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis will not mitigate this double whammy of capital outflows and policies to cope with the pandemic. We argue that purchases of local currency government bonds could be a viable option for credible emerging market central banks to support macroeconomic policy goals in these circumstances.
    Keywords: emerging markets; quantitative easing; COVID-19
    JEL: E52
    Date: 2020–10–02
  5. By: Muduli, Silu; Behera, Harendra
    Abstract: This paper examines the role of bank capital in monetary policy transmission in India during the post-global financial crisis period. Empirical results show that banks with higher capital to risk-weighted assets ratio (CRAR) raise funds at a lower cost. Additionally, banks with higher CRAR transmit monetary policy impulses smoothly, while stressed assets in the banking sector hinder transmission. Recapitalization to raise CRAR can improve transmission; however, CRAR above a certain threshold level may not help as the sensitivity of loan growth to monetary policy rate reduces for banks with CRAR above the threshold. Therefore, it can be concluded that monetary policy can influence credit supply of banks depending on their capital position.
    Keywords: Monetary policy transmission, bank capital and bank lending
    JEL: E44 E51 E52
    Date: 2020–10–16
  6. By: Pierre-Richard Agénor; Timothy P. Jackson; Luiz Pereira da Silva
    Abstract: This paper studies the effects of sterilized foreign exchange market intervention in an open-economy model with financial frictions and imperfect capital mobility. The central bank operates a managed float regime and issues sterilization bonds that are imperfect substitutes (as a result of economies of scope) to investment loans in bank portfolios. Sterilized intervention can be expansionary through a bank portfolio effect and may therefore raise financial stability risks. The model is parameterized and used to study the macroeconomic effects of, and policy responses to, capital inflows associated with a transitory shock to world interest rates. The results show that the optimal degree of exchange market intervention is more aggressive when the central bank can choose simultaneously the degree of sterilization; in that sense, the instruments are complements. At the same time, the presence of the bank portfolio effect implies that full sterilization is not optimal. By contrast, when the central bank’s objective function depends on the cost of sterilization, in addition to household welfare, intervention and sterilization are (partial) substitutes–independently of whether exchange rate and financial stability considerations also matter.
    JEL: E32 E58 F41
    Date: 2020–09
  7. By: Muduli, Silu; Behera, Harendra
    Abstract: This paper examines the role of bank capital in monetary policy transmission in India during the post-global financial crisis period. Empirical results show that banks with higher capital to risk-weighted assets ratio (CRAR) raise funds at a lower cost. Additionally, banks with higher CRAR transmit monetary policy impulses smoothly, while stressed assets in the banking sector hinder transmission. Bank recapitalization to raise CRAR can improve the transmission; however, CRAR above a certain threshold level may not help as the sensitivity of loan growth to monetary policy rate reduces for banks with CRAR above the threshold. Therefore, it can be concluded that monetary policy can influence credit supply of banks depending on their capital position.
    Keywords: Monetary policy,Bank capital,Bank lending
    JEL: E44 E51 E52
    Date: 2020
  8. By: Kovit Charnvitayapong (Faculty of Economics, Thammasat University, Bangkok 10200, Thailand Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - Considerable research indicates that during times of prolonged low interest rates, commercial bank lending channels are less effective in conveying the impact of expansionary monetary policies. What is the impact of easy money policy through lending channels of non-banking financial institutions (NBFIs) such as thrift and credit cooperatives (TCCs) and why should this result occur? The objective of this study is to examine the effectiveness of monetary policy through TCC lending channels compared to bank lending channels from 2008 to 2017. Methodology/Technique - Annual data from 546 TCCs was used in this investigation. A fixed effects model for TCCs and random effect for banks were employed to examine the data. Two models of each institution, one with lagged interaction terms and the other with contemporaneous interaction terms, were tested and compared. The impact of institutional characteristics such as size, deposit, liquidity and equity, and macroeconomic variables such as GDP growth and yield spread, on lending channels were also examined. Findings - As expected, the results show that TCC lending channels respond positively to prolonged low interest rate policies, whilst bank lending channels respond negatively in one model. Thus, if monetary authorities wish to increase the effectiveness of expansionary monetary policy, TCCs should be allowed to develop under careful supervision. Novelty - This study concludes that incremental budgeting caused by regulation must be borne by TCCs. Type of Paper - Empirical.
    Keywords: Thrift and Credit Cooperatives (TCCs); Prolonged Low Interest Rates; Transmission Mechanism; Lending Channels; Fixed Effects.
    JEL: E44 E51 E52 E58
  9. By: Matthieu Lemoine (Centre de recherche de la Banque de France - Banque de France); Harri Turunen (Centre de recherche de la Banque de France - Banque de France); Mohammed Chahad (Centre de recherche de la Banque de France - Banque de France); Antoine Lepetit (Centre de recherche de la Banque de France - Banque de France); Anastasia Zhutova (Centre de recherche de la Banque de France - Banque de France); Pierre Aldama (Centre de recherche de la Banque de France - Banque de France); Pierrick Clerc (Centre de recherche de la Banque de France - Banque de France); Jean-Pierre Laffargue (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper presents the new model for France of the Banque de France (FR-BDF), as well as its key implications for the analysis of monetary policy transmission in France. Relative to our former model, this new semi-structural model has been improved along three dimensions: financial channels are richer, expectations now have an explicit role and simulations now converge toward a balanced growth path. We follow the approach of the FRB/US model, where agents can form their expectations in two different ways, VARbased or model-consistent, and where non-financial behavior react with polynomial adjustment costs. For standard monetary policy shocks, FR-BDF shows a stronger sensitivity than our former model, due to the widespread influence of expectations. Then, we show that, under model-consistent expectations, FR-BDF does not suffer from the forward guidance puzzle. Finally, Eurosystem asset purchase programmes have notable effects in FR-BDF, with a stronger transmission through exchange rates than term premia.
    Keywords: forward guidance,monetary policy,expectations,semi-structural modeling
    Date: 2019–10
  10. By: Akosah, Nana; Alagidede, Imhotep; Schaling, Eric
    Abstract: In this paper, we unfold the historical behaviour of monetary authority in Ghana by estimating the policy rule using the standard quantile regression techniques within wavelet multiscale framework. The results generally suggest an overriding bias towards positive inflation gap across time-scales and quantiles. This is an indication of asymmetric (nonlinear) monetary policy reaction function for Ghana. A policy preference for inflation stabilization is clearly conspicuous in the medium-to-long run, consistent with the medium–to-long term policy objective of price stability in Ghana. Nevertheless, policy reaction to positive inflation gap is woefully below the levels stipulated by the Taylor principle even in the long run, surmising broadly accommodative monetary policy rule and by extension a pursuant of flexible inflation targeting regime in Ghana. Our empirical results thus convey important implications for monetary policy implementation and outcomes in Ghana.
    Keywords: Price Stability, Policy Rule, Inertia, Quantile Regression, Wavelet, Multiscale, Time-Frequency
    JEL: E0 E4 E42 E52 E58
    Date: 2019–05–12
  11. By: Herwartz, Helmut; Rohloff, Hannes; Wang, Shu
    Abstract: In empirical macroeconomics, proxy structural vector autoregressive models (SVARs) have become a prominent path towards detecting monetary policy (MP) shocks. However, in practice, the merits of proxy SVARs depend on the relevance and exogeneity of the instrumental information employed. Our Monte Carlo analysis sheds light on the performance of proxy SVARs under realistic scenarios of low relative signal strength attached to MP shocks and alternative assumptions on instrument accuracy. In an empirical application with US data we argue in favor of the specific informational content of instruments based on the dynamic stochastic general equilibrium model of Smets andWouters (2007). A joint assessment of the benchmark proxy SVAR and the outcomes of a structural covariance change model imply that from 1973 until 1979 monetary policy contributed on average between 2.2 and 2.4 units of inflation in the GDP deflator. For the so-called Volcker disinflation starting in 1979Q4, the benchmark structural model shows that the Fed's policy measures effectively reduced the GDP deflator within three years (i.e. by -3.06 units until 1982Q3). While the empirical analysis largely conditions ona small-dimensional trinity SVAR, the benchmark proxy SVAR shocks remain remarkably robust within a six-dimensional factor-augmented model comprising rich information from Michael McCracken's database (FRED-QD).
    Keywords: structural vector autoregression,external instruments,proxy SVAR,heteroskedasticity,monetary policy shocks
    JEL: C15 C32 C36 E47
    Date: 2020
  12. By: Bahar Sungurtekin Hallam
    Abstract: We develop and apply a new methodology to study the transmission mechanisms of international macroeconomic and financial shocks in the context of emerging markets. Our approach combines aspects of factor analysis and GVAR models by replacing the cross-unit averages that serve as foreign variables in the GVAR model with macroeconomic and financial factors extracted from potentially unbalanced panels of country-level data. Factors are extracted at the country, region and global levels, with a natural hierarchical structure. Furthermore, we allow for time variation in both the model parameters and shock volatility. Our key empirical findings are as follows. First, there is substantial time-variation in the responses of our chosen emerging economies to foreign financial, interest rate and macroeconomic shocks. Second, in response to tighter global financial conditions, policy rates increase in most of our chosen emerging economies, particularly after the crisis. They appear more concerned with financial stability and capital inflows, given that they increase their short term rates more at the expense of large drops in equity prices and output. Third, financial tightening in other emerging market country groups has a loosening effect on domestic financial conditions. Fourth, as we include a global financial risk factor along with the US monetary policy rate, our results suggest that the contractionary effects of US interest rate shocks are taken over by the global financial risk shock. Lastly, we find some evidence that macroeconomic interdependencies among emerging economies have been increasing while their dependencies on advanced economies have been decreasing over time.
    Keywords: Time-varying parameter GVAR model, Factor analysis, Dual Kalman filter, Transmission channels of external shocks, Monetary policy
    JEL: C30 C32 C38 E44 F41
    Date: 2020
  13. By: Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
    Abstract: We present the set of measures that the ECB has undertaken to fight the pandemic crisis by outlining the deep impact that COVID-19 is having on economic structures, and by highlighting the differences between the current policy package and previous ECB’s programmes. Moreover, we discuss what are the challenges that await the ECB in the medium to long run, contingent on different post-COVID scenarios concerning economic growth and inflation, considering its peculiar multinational jurisdiction.
    Date: 2020
  14. By: Olga Khon (Independent Researcher, Saint Petersburg)
    Abstract: We estimate a short-run demand function, using the quarterly data available for modern Russian market - on the one-quarter basis for 1997-2020. Empirical results provide a stable money demand function that explains the short-run money velocity movement. The approach is based on econometric models and dynamic least square methods evaluation within the Akaike criterion applied for the authors? choice of leads and lags. The prior innovation related to model comparison of interest rates in money demand function ? from research-common money market rate to interbank market rate, amplifying proxy better-fitted for the Russian market.
    Keywords: Monetary policy, money demand, money velocity, income elasticity, interest semi-elasticity
    JEL: E41 G28 C50
  15. By: Demetrio Lacava; Giampiero M. Gallo; Edoardo Otranto
    Abstract: As a response to the Great Recession, many central banks resorted to unconventional monetary policies, in the form of a balance sheet expansion. Our research aims at analyzing the impact of the ECB policies on stock market volatility in four Eurozone countries (France, Germany, Italy, and Spain) within the Multiplicative Error Model framework. We propose a model that allows us to quantify the part of market volatility depending directly on unconventional policies by distinguishing between the announcement effect and the implementation effect. While we observe an increase in volatility on announcement days, we find a negative implementation effect, which causes a remarkable reduction in volatility in the long term. A Model Confidence Set approach finds how the forecasting power of the proxy improves significantly after the policy announcement; a multi-step ahead forecasting exercise estimates the duration of the effect, and, by shocking the policy variable, we are able to quantify the reduction in volatility which is more marked for debt-troubled countries.
    Date: 2020–10
  16. By: Marc C. Adam (Forum New Economy); Robert Gold
    Abstract: This paper first describes the basic idea of Helicopter Money and the context in which it evolved from Milton Friedman’s famous 1969 essay until today. We discuss the challenges facing advanced economies, to which Helicopter Money has been proclaimed a possible solution. The paper provides a review of the recent debate around Helicopter Money and discusses the effectiveness of this tool in the current and future crises.
    Keywords: Helicopter Money; central bank; fiscal policy
    JEL: B2 E4 E5 E6 H6
    Date: 2020–04
  17. By: Tanaka, Yasuhito
    Abstract: We show the negative relation between the unemployment rate and the inflation rate, that is, the Phillips curve using an overlapping generations model under monopolistic competition. We consider the effects of exogeneous changes in labor productivity. An increase (decrease) in the labor productivity in a period induces a decrease (increase) in the employment, an increase (decrease) in the unemployment rate and a falling (rising) in the price of the goods in the same period. Then, given the price in the previous period the inflation rate falls (rises). This conclusion is based on the premise of utility maximization of consumers and profit maximization of firms. Therefore, we have presented a microeconomic foundation of the Phillips curve.
    Keywords: Phillips Curve, Microeconomic foundation, Overlapping generations model, Monopolistic competition.
    JEL: E12 E24 E31
    Date: 2020–10–10
  18. By: Riccardo De Bonis (Bank of Italy); Matteo Piazza (Bank of Italy)
    Abstract: This work provides a comprehensive overview of the giant leap made by European central bank statistics over the last quarter century. We illustrate, first, the work that led to a brand new set of central bank statistics for the implementation of the common monetary policy in the euro area. We then focus on the most significant developments brought up by the financial crisis and by the institutional changes that accompanied it. The final part look at challenges lying ahead for official statistics, namely how to deal with digitalization and globalization.
    Keywords: Central bank statistics, data harmonisation
    JEL: C82 E59
    Date: 2020–09
  19. By: Taneli Mäkinen; Fan Li; Andrea Mercatanti; Andrea Silvestrini
    Abstract: The causal effect of the European Central Bank's corporate bond purchase program on bond spreads in the primary market is evaluated,making use of a novel regression discontinuity design. The results indicate that the program did not, on average, permanently alter the yield spreads of eligible bonds relative to those of noneligible. Combined with evidence from previous studies, this finding suggests the effects of central bank asset purchase programs are in no way limited to the prices of the specific assets acquired.
    JEL: C21 G18
    Date: 2020–10
  20. By: Alberto Di Iorio (Bank of Italy); Marco Fanari (Bank of Italy)
    Abstract: This paper focuses on break-even inflation rates (BEIRs), a widely used market-based measure of expected inflation, computed from government bonds. In the first part of the paper, we regress the Italian BEIR on several financial variables to assess the contribution of inflation, credit and liquidity components. In the second, in order to disentangle market participants’ inflation expectations from risk premia, we estimate a term structure model for the joint pricing of the Italian nominal and real yield curves, considering also credit and liquidity factors. The results show that BEIRs could be a misleading measure of the expected inflation due to the importance of inflation risk premium and credit risk effect. According to our estimates, the decrease in market-based measures of inflation observed in the last part of the sample period seems to reflect a lowering of both inflation expectations and risk premia. Inflation premia co-move with a measure of tail risk of the long-term inflation distribution signalling that investors become more concerned with downside risks.
    Keywords: inflation-linked bonds, government yields, break-even inflation rate, expected inflation, inflation risk premium, term structure model
    JEL: C32 E43 G12 H63
    Date: 2020–09
  21. By: Mengheng Li; Bowen Fu
    Abstract: The literature on uncovered interest rate parity (UIP) shows two empirical puzzles. One is the failure of UIP, and the other is the unstable coefficients in the UIP regression. We propose a time-varying coefficients model with stochastic volatility and US structural shocks (TVC-SVX) to study how US structural shocks affect time-variation in the bilateral UIP relation for twelve countries. An unconditional test and a conditional test for UIP are developed. The former tests if UIP coefficients mean-revert to their theoretical values, whereas the latter tests coefficients at each point in time. Our findings suggest that the failure of UIP results from omitted US factors, in particular US monetary policy, productivity and preference shocks, which are also found to Granger cause local movements of UIP coefficients.
    Keywords: Time-varying parameter, Stochastic volatility, Model uncertainty, Exchange rate, Uncovered interest rate parity
    JEL: C11 C32 F31 F37
    Date: 2020–10
  22. By: Dong, Mei; Huangfu, Stella; Sun, Hongfei
    Abstract: We study the behavior and macroeconomic impact of oligopolistic banks in a tractable environment with micro-foundations for money and banking. Our model features oligopolistic banks, which resembles the structure of the banking sector observed in most advanced economies. Banks interact strategically where they compete against each other in terms of the volume of loans to make. We find that it is welfare-maximizing to have the banking sector as oligopolistic, i.e., to have a small number of large banks. In addition, moderate inflation improves welfare because it helps to ease congestion in the banking sector.
    Keywords: banking; oligopoly; liquidity; market frictions
    Date: 2020–10
  23. By: Qichun He (China Economics and Management Academy, Central University of Finance and Economics); Yulei Luo (Faculty of Business and Economics, University of Hong Kong); Jun Nie (Research Department, Federal Reserve Bank of Kansas City); Heng-fu Zou (China Economics and Management Academy, Central University of Finance and Economics)
    Abstract: According to Schumpeter (1934), entrepreneurs are driven to innovate not for the fruits of success but for success itself. This description of entrepreneurship echoes Weber's (1958 ) description of the "spirit of capitalism," which states that people enjoy the accumulation of wealth irrespective of its effect on smoothing consumption. This paper explores the implica- tions of the spirit of capitalism on monetary policy, growth, and welfare in a Schumpeterian growth model. Different from the existing literature, we show that money is not superneutral in the long run and it could promote economic growth when the spirit of capitalism is strong. Furthermore, we show the optimal nominal interest rate decreases with the strength of the spirit of capitalism, potentially supporting a negative interest rate. Finally, our calibrated model suggests that the spirit of capitalism explains an important share (about one-third) of long-run growth in the United States.
    Date: 2020

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