nep-mon New Economics Papers
on Monetary Economics
Issue of 2021‒09‒06
thirty papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. The Power of Central Bank Balance Sheets By Athanasios Orphanides
  2. Monetary policy financial transmission and treasury liquidity premia By Maxime Phillot; Samuel Reynard
  3. Estimating Fed’s unconventional policy shocks By Jarociński, Marek
  4. Impact of e-money on money supply: Estimation and policy implication for Bangladesh By Nizam, Ahmed Mehedi
  5. Inflation risk? By De Grauwe, Paul
  6. Intergenerational redistributive effects of monetary policy By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  7. Welfare Implications of Asset Pricing Facts: Should Central Banks Fill Gaps or Remove Volatility? By Pierlauro Lopez
  8. Banks’ internalization effect and equilibrium By Chrysanthopoulou, Xakousti
  9. Monetary policy and COVID-19 By Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
  10. UNCERTAINTY AND MONETARY POLICY DURING THE GREAT RECESSION By Giovanni Pellegrino; Efrem Castelnuovo; Giovanni Caggiano
  12. A study on the exchange rate pass-through to consumer prices in Malta By Glenn Abela; Noel Rapa
  13. Sovereign Default Risk, Macroeconomic Fluctuations and Monetary-Fiscal Stabilization By Markus Kirchner; Malte Rieth
  14. Monetary and Fiscal Spillovers Across the Atlantic: The Role of Financial Markets By Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
  15. Do Central Banks Rebalance Their Currency Shares? By Menzie D. Chinn; Hiro Ito; Robert N. McCauley
  16. Zooming in on Monetary Policy - The Labor Share and Production Dynamics of Two Million Firms By Jan Philipp Fritsche; Lea Steininger
  17. Interest Rate Cuts vs. Stimulus Payments: An Equivalence Result By Christian K. Wolf
  18. "Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment" By Sam Levey
  19. A Monetary-Fiscal Theory of Sudden Inflations and Currency Crises By David S. Miller
  20. Monetary Policy over the Lifecycle By R. Anton Braun; Daisuke Ikeda
  21. Global Capital, the Exchange Rate, and Policy (In)Effectiveness By Biagio Bossone
  22. Interest Rate Rules, Rigidities and Inflation Risks in a Macro-Finance Model By Roman Horvath; Lorant Kaszab; Ales Marsal
  23. Banks and financial markets in microfounded models of money By van Buggenum, Hugo
  24. What makes a successful scientist in a central bank? Evidence from the RePEc database By Jakub Rybacki; Dobromił Serwa
  25. Uncertainty and Exchange Rates: Global Dynamics (Well, I Don't Quite Know Anymore) By Suah, Jing Lian
  26. The existential trilemma of EMU in a model of fiscal target zone By Pompeo Della Posta,; Roberto Tamborini
  28. Price Change Synchronization within and between Firms By Nilsen, Øivind A.; Skuterud, Håvard; Munthe-Kaas Webster, Ingeborg
  29. Expectational and Portfolio-Demand Shifts in a Keynesian Model of Monetary Growth Fluctuations By Greg Philip Hannsgen; Tai Young-Taft
  30. Fiscal policy in a monetary union with downward nominal wage rigidity By Matthias Burgert; Philipp Pfeiffer; Werner Roeger

  1. By: Athanasios Orphanides (Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management (E-mail:
    Abstract: When interest rate policy is hampered by the Zero Lower Bound (ZLB), quantitative easing and other balance sheet policies become essential tools for responding to a crisis or deflationary shock. By unleashing the power of their balance sheets at the onset of the pandemic, without the hesitation observed in past encounters with the ZLB, the Federal Reserve, the European Central Bank and the Bank of Japan provided monetary easing that cushioned the economic blow, served as a backstop to government securities and private assets that prevented a financial market meltdown and facilitated the financing of an essential fiscal expansion. This paper examines how this policy success materialized, drawing on lessons learned from previous encounters with the ZLB, and discusses policy challenges after the pandemic.
    Keywords: Zero lower bound, Balance sheet policies, Quantitative easing, Eligibility, Fiscal-monetary interactions
    JEL: E52 E58 E61
    Date: 2021–08
  2. By: Maxime Phillot; Samuel Reynard
    Abstract: We quantify the effects of monetary policy shocks on the yield curve through their impact on Treasury liquidity premia. When the Fed raises interest rates, the spread between less-liquid assets and Treasuries of the same maturity and risk increases, as the liquidity value of holding Treasuries increases when the aggregate volume of banks’ customer deposits decreases. The longer the maturity is, the smaller - but still significant - the increase in the liquidity premium is, as longer-term Treasuries are less liquid. Due to this change in liquidity premia, the spread between a 10-year Treasury bond and a 3-month T-bill yield increases by approximately 5 basis points for a one-percentage-point increase in the policy rate, i.e., the Treasury yield curve steepens, ceteris paribus.
    Keywords: Treasury liquidity premia, monetary policy, yield curve, deposit channel
    JEL: E52 E43 E41
    Date: 2021
  3. By: Jarociński, Marek
    Abstract: Fed's monetary policy announcements convey a mix of news about different kinds of conventional and unconventional policies and about the economy. Financial market responses to these announcements are very leptokurtic: often tiny, but sometimes large. I estimate the underlying structural shocks exploiting this feature of the data. I find standard monetary policy, Odyssean forward guidance, large scale asset purchases and Delphic forward guidance, and estimate their effects. JEL Classification: E52, E58, E44
    Keywords: Asset purchases, Excess kurtosis, Forward guidance, High-frequency identification, Non-Gaussianity
    Date: 2021–08
  4. By: Nizam, Ahmed Mehedi
    Abstract: With the rapid proliferation of mobile telephony and the establishment of an IT-enabled payment and settlement system, Bangladesh, nowadays, is experiencing a meteoric rise in the usage of mobile financial services (MFS). As more and more people are opting to use this service, a huge number of mobile accounts are opened every day and a substantial amount of money is deposited, withdrawn and transferred frequently through the mobile network. This ever-increasing amount of mobile money flowing through the network may have a sizeable impact on the overall money supply of the country. Thus far, no systematic study has been conducted to quantify the impact of the mobile money on the conventional money supply of Bangladesh. In this study, we attempt to quantify the contribution of mobile money on the money supply which is an important quantity-based anchor of monetary policy in Bangladesh. Apart from quantifying the impact of digital (mobile) money on the money supply, we also qualitatively discuss its implication on another price-based nominal anchor of monetary policy in Bangladesh, i.e., interest rate. Moreover, in recent times, the government of Bangladesh has capped market interest rate with an intent to boost up business activities and in doing so, it (the government) has irrevocably broken the money market equilibrium which may result into dead-weight loss according to economic theory. Here, we qualitatively argue that financial inclusion through MFS has the potential to substantially reduce market interest rate without any manual intervention by significantly adding to the money supply which is supposed to be resulted into a reduced interest rate as an eventual consequence.
    Keywords: Mobile financial services; Bangladesh; financial inclusion; money supply; money multiplier; monetary policy
    JEL: E51 E52 G21 G28 O11 O33
    Date: 2021–09–02
  5. By: De Grauwe, Paul
    Abstract: Inflation is on the rise again in the industrialised world. This has led to fears of a sustained surge in inflation. This article argues that while such fears may make sense in the US, they do not in the eurozone, where the monetary-fiscal policy mix has been much less expansionary than in the US. The fear expressed by some that the monetary overhang from the large injections of liquidity through quantitative easing might lead to inflation in the eurozone does not stand up to scrutiny either. The conclusion offers some observations on the monetary operating procedures in the ECB. It argues that in the future, when interest rates rise again, the ECB risks transferring all (and even more) of its profits to the banking system. This article proposes a way to avoid this unacceptable outcome.
    JEL: N0 F3 G3
    Date: 2021–08–05
  6. By: Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
    Abstract: This paper investigates the distributional consequences of monetary policy across generations. We use a life-cycle model with a rich asset structure as well as nominal and real rigidities calibrated to the euro area using both macroeconomic aggregates and microeconomic evidence from the Household Finance and Consumption Survey. We show that the life-cycle profi les of income and asset accumulation decisions are important determinants of redistributive effects of monetary shocks and ignoring them can lead to highly misleading conclusions. The redistribution is mainly driven by nominal assets and labor income, less by real and housing assets. Overall, we find that a typical monetary policy easing redistributes welfare from older to younger generations.
    Keywords: monetary policy, life-cycle models, wealth redistribution
    JEL: E31 E52 J11
    Date: 2021–03
  7. By: Pierlauro Lopez
    Abstract: More than 20 years of financial market data suggest a term structure of the welfare cost of economic uncertainty that is downward-sloping on average, especially during downturns. This evidence offers guidance in selecting a model to study the benefits of macroeconomic stabilization from a structural perspective. The addition of nonlinear external habit formation to a textbook monetary model can rationalize the evidence. The model is observationally equivalent in its quantity implications to a standard New Keynesian model with CRRA utility, but the optimal policy prescription is overturned. In the model the central bank should prioritize removing consumption volatility (a targeting of risk premia) over filling the gap between consumption and its flexible-price counterpart (inflation targeting).
    Keywords: Welfare cost of business cycles; Macroeconomic priorities; Equity and bond yields; Optimal monetary policy; Financial Stability
    JEL: E32 E44 E61 G12
    Date: 2021–08–30
  8. By: Chrysanthopoulou, Xakousti
    Abstract: This paper extends the standard New Keynesian model to allow for the presence of large banks, when the cost channel of monetary policy matters. It is shown that once the presence of large banks is taken into account the severity of the firms’ credit constraints, the aggressiveness of the central bank in stabilizing inflation and the degree of loan setting centralization jointly affect the steady state output. Moreover, it turns out that the indeterminacy region is not only shrunk due to the presence of a finite number of large banks but also dependent – among others - on the way in which the central bank and the macroprudential authority systematically behave.
    Keywords: Large banks; Cost channel; Indeterminacy; Countercyclical capital buffer
    JEL: E32 E44 E52
    Date: 2021–08–20
  9. By: Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
    Abstract: We study the macroeconomic effects of the COVID-19 epidemic in a quantitative dynamic general equilibrium setup with nominal rigidities. We evaluate various containment policies and show that they allow to dramatically reduce the welfare cost of the disease. Then we investigate the role that monetary policy, in its capacity to manage aggregate demand, should play during the epidemic. We show that treating the observed output contraction as a standard recession leads to a bad policy, irrespective of the underlying containment measures. Then we check how monetary policy should solve the trade-off between stabilizing the economy and containing the epidemic. If no administrative restrictions are in place, the second motive prevails and, in spite of the deep recession, optimal monetary policy is in fact contractionary. Only if sufficient containment measures are being introduced should central bank interventions be expansionary and help stabilize economic activity.
    Keywords: COVID-19; Epidemics; Containment measures; Monetary policy
    JEL: E1 E5 E6 H5 I1 I3
    Date: 2021–07
  10. By: Giovanni Pellegrino (Aarhus University); Efrem Castelnuovo (University of Padova); Giovanni Caggiano (Monash University and University of Padova)
    Abstract: We employ a nonlinear VAR framework and a state-of-the-art identification strategy to document the large response of real activity to a financial uncertainty shock during and in the aftermath of the great recession. We replicate this evidence with an estimated DSGE framework featuring a concept of uncertainty comparable to that in our VAR. We then use the estimated framework to quantify the output loss due to the large uncertainty shock that materialized in 2008Q3. We find such a shock to be able to explain about 60% of the output loss in the 2008-2014 period. The same estimated model unveils the role successfully played by the Federal Reserve in limiting the output loss that would otherwise have occurred had monetary policy been conducted as in normal times. Finally, we show that the rule estimated during the great recession is able to deliver an economic outcome closer to the flexible price one than the rule describing the Federal Reserve's conduct in normal times.
    Keywords: Uncertainty shock, nonlinear IVAR, nonlinear DSGE framework, minimum-distance estimation, great recession
    JEL: C22 E32 E52
    Date: 2021–03
  11. By: Solikin M. Juhro (Bank Indonesia); Reza Anglingkusumo (Bank Indonesia)
    Abstract: This paper empirical shows that unconventional monetary policy (UMP) in the US after the global financial crisis (GFC) affects capital inflows to SEACEN economies. For open middle income SEACEN economies, such as Indonesia, capital flows volatility induced by the UMP in the US adds to the complexity of managing monetary policy trilemma (MPT). A recent hypothesis states that in post GFC, it is possible for monetary authority in an open emerging market economy to retain monetary policy sovereignty (MPS) if and only if capital flows is managed, directly or indirectly, regardless the degree of exchange rate flexibility. This paper contends that for the case of Indonesia, MPS remains feasible even without a direct capital control. This supports the argument that MPS depends more on the strength of the policy framework to address domestic policy objectives. We argue that the implementation of central bank policy mix by Bank Indonesia provides such strength.
    Keywords: capital inflows, unconventional monetary policy, monetary policy trilemma
    JEL: E22 F32 F36 F41
    Date: 2020
  12. By: Glenn Abela; Noel Rapa (Central Bank of Malta)
    Abstract: Exchange Rate Pass-Through (ERPT), commonly defined as the extent to which exchange rate changes are reflected in the price levels of an economy, has important implications in a number of policy-relevant areas. Despite this, estimates of ERPT in the Maltese economy are scarce and do not take into account changes in the monetary regime pertaining to the adoption of the euro. In this paper, we use local projections (LP) to estimate linear and non-linear ERPT to consumer prices in Malta after its accession to the European Monetary Union. In line with literature, results point at incomplete ERPT to headline consumer prices, peaking at around 20% by the end of the first year after the exchange rate shock. ERPT to overall HICP inflation seems to be largely driven by the goods component while ERPT to services prices is largely insignificant across the horizon considered. Allowing for non-linearities, we find evidence of asymmetric pass-through with larger changes to as well as depreciations in the nominal effective exchange rate being consistent with larger pass-through estimates
    JEL: E31 F31
    Date: 2021
  13. By: Markus Kirchner; Malte Rieth
    Abstract: This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilization policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly improves the fit of the model through an endogenous amplification between default beliefs, exchange rate and inflation movements. We then use the estimated model to study the implications of sovereign risk for stability, fiscal and monetary policy, and their interaction. We find that a relatively strong fiscal feedback from deficits to taxes, some exchange rate targeting, or a monetary response to default premia are more effective and efficient stabilization tools than hawkish inflation targeting.
    Keywords: Small open economies, sovereign risk, monetary policy, exchange rates, business cycles, DSGE models
    JEL: E58 E63 F41
    Date: 2021
  14. By: Luigi Bonatti; Andrea Fracasso; Roberto Tamborini
    Abstract: We present a review of the channels through which the US fiscal and monetary post-pandemic policies may affect the euro area. US spillovers will likely be relevant and worth considering while setting the policy stance in the euro area, at a crossroad between economic global recovery and global overheating. A key role is going to be played by global financial markets, their appetite for open-ended stimulative policies and fears of hard disinflation scenarios affecting central banks' ability to keep the economies on the recovery path and inflation expectations anchored.
    Date: 2021
  15. By: Menzie D. Chinn; Hiro Ito; Robert N. McCauley
    Abstract: Do central banks rebalance their currency shares? The answer matters because the dollar’s predominant role in large official reserve holdings means that widespread rebalancing requires central banks to buy (sell) a depreciating (appreciating) dollar, stabilising its value against other major currencies. We hypothesise that larger reserve holdings have led central banks to approach their investment more systematically and to make rebalancing in the face of exchange rate changes the norm. We illustrate the choice with two polar case studies: the US clearly does not rebalance its small FX reserves; Switzerland does rebalance its very large reserves, so that changes in exchange rates do not move its currency allocation. Our hypothesis finds partial support in global aggregated data. They reject both no rebalancing and full rebalancing and point to emerging market economies as the source of the aggregate result. We also test for rebalancing with panel data and find that our sample economies on average again behave in intermediate fashion, partially but not fully rebalancing. However, when observations are weighted by the size of reserves, the panel analysis finds full rebalancing. A variety of control variables and splits of the panel sample do not alter the thrust of these findings. Central banks rebalance their FX reserves extensively but not uniformly.
    JEL: F31 F42
    Date: 2021–08
  16. By: Jan Philipp Fritsche; Lea Steininger
    Abstract: Conditional on a contractionary monetary policy shock, the labor share of value added is expected to decrease in the basic New Keynesian model. By providing firm-level evidence, we are first to validate this proposition. Using local projections and high dimensional fixed effects, we show that a one standard deviation contractionary monetary policy shock decreases firms' labor share by 0.4 percent, on average. However, reactions are heterogeneous along two dimensions: The labor share is most informative to discriminate firms by their response in payroll expenses, firms' leverage is most informative to discriminate by their response in value added. We inform the policy debate on transmission and redistribution effects of monetary policy.
    Keywords: Monetary policy, firm heterogeneity, labor share, financial frictions, DSGE model validatio
    JEL: D22 D31 E23 E32 C52
    Date: 2021
  17. By: Christian K. Wolf
    Abstract: In a textbook New Keynesian model extended to allow for uninsurable household income risk, any path of inflation and output implementable via interest rate policy is similarly implementable through uniform lump-sum transfers ("stimulus checks"). A dual-mandate policymaker can thus use checks to perfectly substitute for conventional monetary policy when rates are constrained by a lower bound. In a quantitative heterogeneous-agent (HANK) model, the stimulus check policy that implements a given monetary allocation is well-characterized by a small number of measurable sufficient statistics. In the household cross-section, the transfer policy is associated with lower consumption inequality than the equivalent rate cut.
    JEL: E2 E3 E6
    Date: 2021–08
  18. By: Sam Levey
    Abstract: Many of the claims put forth by Modern Monetary Theory (MMT) center around the state's monopoly over its own currency. In this paper I interrogate the plausibility of two claims: 1) MMT’s theory of the price level--that the price level is a function of prices paid by government when it spends--and 2) the claim that the cause of deficient effective demand is the state's failure to supply government liabilities so as to meet the demand for net financial assets. I do so by building a model of "monopoly money" capable of producing these two outcomes.
    Keywords: Modern Monetary Theory; Price Level; Monopoly Money; Durapoly; Deficient Effective Demand
    JEL: E4 E62 B52 D42
    Date: 2021–08
  19. By: David S. Miller
    Abstract: Treating nominal government bonds like other bonds leads to a new theory of sudden inflations and currency crises. Holmstrom (2015) and Gorton (2017) describe bonds as having costly-to-investigate opaque backing that consumers believe is sufficient for repayment. Government bonds' nominal return is their face value, their real return is determined by the government's surplus. In normal times, consumers are confident of repayment but ignorant of the true surpluses that will fund that repayment. When consumers' belief in real repayment wavers, they investigate surpluses. If consumers learn surpluses will be insufficient to repay bonds in real terms, the price level jumps. This explains why we observe inflationary crises, but never deflationary.
    Keywords: Currency Crises; Price Level Determination; Monetary Fiscal Interaction; Fiscal Theory of the Price Level
    JEL: E31 E51 E52 E63
    Date: 2021–08–24
  20. By: R. Anton Braun (Federal Reserve Bank of Atlanta (E-mail:; Daisuke Ikeda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: A tighter monetary policy is generally associated with higher real interest rates on deposits and loans, weaker performance of equities and real estate, and slower growth in employment and wages. How does a household's exposure to monetary policy vary with its age? The size and composition of both household income and asset portfolios exhibit large variation over the lifecycle in Japanese data. We formulate an overlapping generations model that reproduces these observations and use it to analyze how household responses to monetary policy shocks vary over the lifecycle. Both the signs and the magnitudes of the responses of a household's net worth, disposable income and consumption depend on its age.
    Keywords: Monetary policy, Lifecycle, Portfolio choice, Nominal government debt
    JEL: E52 E62 G51 D15
    Date: 2021–08
  21. By: Biagio Bossone
    Abstract: In line with JMK’s liquidity preference theory, this article holds that in a world of highly internationally financially integrated economies the exchange rate between any two currencies is determined by the financial market views as to what its value is expected to be in the future. These views are influenced by the policy credibility that markets themselves attribute to the currency-issuing countries. After briefly reviewing the established theories of the exchange rate, the article proposes a very simple, aggregate model of equilibrium exchange rate determination based on market views and discusses its basic features and policy implications. It shows that whereas macro policy shocks in highly credible countries affect mostly real output with only a moderate impact on the exchange rate, the same shocks in poorly credible countries dissipate almost entirely in exchange rate movements. The exchange rate ultimately reflects the space that markets make available to national authorities for effective macro policies.
    Keywords: Credibility; Exchange rate; Global investors and capital; Inflation; Macroeconomic policy
    JEL: F41 F62 G15
    Date: 2021–09
  22. By: Roman Horvath (Charles University, Prague); Lorant Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Ales Marsal (National Bank of Slovakia)
    Abstract: Long-term bond yields contain a risk-premium, an important part of which is compensation for inflation risks. The substantial increase in the Fed funds rate in the mid-2000s did not raise long-term US Treasury yields due to the reduction in the term premium (so-called Greenspan conundrum) which was typically thought to be exogenous for monetary policy. We show using a New Keynesian macro-finance model that the term premium is endogenous and is greatly influenced by the specification of the Taylor rule. Finally, we extend the model with frictions (richer fiscal setup and wage rigidity) that are known to help jointly match macro and finance data and estimate the model on US data in 1961-2007 by the generalized methods of moments and simulated methods of moments.
    Keywords: zero-coupon bond, nominal term premium, inflation risk, Taylor rule, New Keynesian, labor income taxation, wage rigidity, GMM, SMM
    JEL: E13 E31 E43 E44
    Date: 2021
  23. By: van Buggenum, Hugo (Tilburg University, School of Economics and Management)
    Date: 2021
  24. By: Jakub Rybacki; Dobromił Serwa
    Abstract: This research analyzes factors affecting scientific success of central bankers. We combine data from the RePEc and EDIRC databases, which contain information about economic publications of authors from 182 central banks. We construct a dataset containing information about 3312 authors and almost 80 thousand scientific papers published between 1965 and 2020. Results from Poisson regressions of citation impact measure called h-index, on a number of research features suggest that economists from the US Federal Reserve Banks, international financial institutions, and some eurozone central banks are cited more frequently than economists with similar characteristics from central banks located in emerging markets. Researchers from some big emerging economies like Russia or Indonesia are cited particularly infrequently by the scientific community. Beyond these outcomes, we identify a significant positive relationship between research networking and publication success. Moreover, economists cooperating with highly cited scientists also obtain a high number of citations even after controlling for the size of their research networks.
    Keywords: RePEc, Scientific Success, h-index, Big data.
    JEL: E58 D02 I23
    Date: 2021–04
  25. By: Suah, Jing Lian
    Abstract: This paper offers two points on the impact of uncertainty and exchange rate shocks on output. (1) A conceptual model where behavioural frictions --- rational inattentiveness and bounded expectations --- interact with uncertainty, generating aggregate fluctuations. Central banks can target these behaviourial frictions to stabilise output and prices. (2) Empirical findings from a panel of advanced and emerging economies. Output and inflation slow in response to uncertainty shocks. Government bond yields moderate and exchange rates depreciate, suggesting within-country and between-country flight-to-safety respectively. Exchange rate appreciation shocks generate similar responses. The Malaysia-specific analysis finds divergent responses in employment and output, likely reflecting compositional effects in more productive tradable and less productive non-tradable sectors. In a panel fixed effects and quantile regression setting, I find indicative interaction between output, exchange rate and uncertainty, and a distributional dimension.
    Keywords: Uncertainty, Rational Inattention, Bounded Rationality, VAR
    JEL: E00 E03
    Date: 2020–11–01
  26. By: Pompeo Della Posta,; Roberto Tamborini
    Abstract: The lesson of the sovereign debt crises of the 2010s, and of the outbreak of the COVID- 19 pandemic is that EMU irreversibility, if not to remain a wishful statement in the founding treaties, necessitates to be completed by carefully designed ramparts for extraordinary times beside regulations for ordinary times. In this paper we wish to contribute to this line of thought in two points. First, we highlight that when exposed to large, systemic shocks the EMU faces a trilemma: its integrity can only be saved by relaxing either monetary orthodoxy, or fiscal orthodoxy, or both. We elaborate this concept by means of a fiscal target-zone model, where EMU member governments are willing to abide with the commitment to debt stability under the no-bailout clause only up to an upper bound of their feasible fiscal effort. Second, we show that EMU completion means providing a monetary and/or fiscal emergency backstop to the irreversibility principle. Drawing on the target-zone literature, we show how these devices can be designed in a consistent manner hat minimises their extension and mitigates the moral hazard concerns. The alternative to these devices is not retaining both the EMU irreversibility and the twin orthodoxies, but reformulating the treaties with explicit and regulated exit procedures.
    Keywords: COVID-19 pandemic, Fiscal Target Zone, Public Debt, Speculative Attacks, Fiscal Orthodoxy, Monetary Orthodoxy
    JEL: E65 F34 F36
    Date: 2021
  27. By: LOMEMBE, Jacques; NGEWAMPADIO, Remy
    Abstract: Since the beginning of 2020, the global economy and, in particular, the DRC’s, have been shaken by the effects of Covid-19 pandemic. However, this pandemic has affected countries asymmetrically. In advanced economies, the slowdown of GDP is accompanied by a decline in main raw materials prices and low inflation. But, in developping countries, such as the DRC’s, an increase of inflation has been associated to the slowdown. This paper analyses the transmission mechanism of the Covid-19 crisis on the inflation in DRC and suggest some ways of mitigation covid-19 economic impacts. An analysis of availlable data’s in DRC’s economy did not identify clearly the link between Covid-19 crisis an money supply from fiscal deficit which is usually the main cause of inflation, maybe because of fiscal maturities in the end of the month, that hide transitory negative fiscal shock which are observe in the middle of each month. The effect of those transitory fiscal deficits is an increase of liquidity and prices pressure.
    Keywords: COVID-19 crisis, shock on economy, liquidity, inflation
    JEL: E30 E61
    Date: 2021–02
  28. By: Nilsen, Øivind A. (Dept. of Economics, Norwegian School of Economics and Business Administration); Skuterud, Håvard; Munthe-Kaas Webster, Ingeborg
    Abstract: This paper provides evidence on price rigidity at the product- and firm-level in Norway. A strong within-firm synchronization is found supporting the theory of economies of scope in menu costs. The industry synchronization effects are found to be small suggesting that firms either have some monopoly power, or that a firm’s costs of changing their own prices may be larger than the benefit of responding to their competitors’ price changes. These findings have potentially important implications for the micro-foundations of macroeconomic models, and thus the policy advice derived from such models.
    Keywords: Price Setting; Monthly Micro Data; Selection Effects.
    JEL: C35 D43 E31
    Date: 2021–08–26
  29. By: Greg Philip Hannsgen; Tai Young-Taft
    Abstract: We develop a pair of models to show how non-ad-hoc shifts to expectational variables can be used to model tendencies toward crisis. In the Shackle model, as developed in the book Keynesian Kaleidics (1974), uncertainty can lead to a collapse in the marginal efficiency of investment and a jump in liquidity preference. In the Minsky version of the model, excessive private debt can lead to a financial collapse–again an endogenous breakdown in forces supporting growth. We extend the models to indicate how the dynamics of inflation and distribution affect the dynamics.
    Keywords: Post Keynesian macro model, Poisson model of financial fragility, Keynesian dynamics, Hyman Minsky, G.L.S. Shackle, Keynesian Kaleidics, endogenous MEI and liquidity preference, financial fragility hypothesis
    JEL: E12 E32
    Date: 2021–08
  30. By: Matthias Burgert; Philipp Pfeiffer; Werner Roeger
    Abstract: We estimate an open economy DSGE model to study the fiscal policy implications of downward nominal wage rigidity (DNWR) in a monetary union. DNWR has significantly exacerbated the recession in the southern euro area countries and is important for the design of fiscal policy. We show that a cut in social security contributions paid by employers (equivalent to wage subsidies) is particularly effective in a deep recession with limited wage adjustment. Such cuts strengthen domestic demand and international competitiveness. Compared to government expenditure increases, the reduction in social security contributions provides more persistent growth effects and enhances the fiscal position. Non-linear estimation methods establish a strong state-dependence of policy.
    Keywords: Downward nominal wage rigidity, currency union, fiscal policy, nonlinear estimation
    JEL: E3 F41 F45
    Date: 2021

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