nep-tra New Economics Papers
on Transition Economics
Issue of 2021‒05‒24
eight papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. Exchange Rate Shocks and Quality Adjustments By Goetz, Daniel; Rodnyansky, Alexander
  2. The Effects of Fiscal Policy on Households during the COVID-19 Pandemic: Evidence from Emerging Economies By Dzung Bui; Lena Draeger; Bernd Hayo; Giang NghiemŸ
  3. The macroeconomics of carry trade gone wrong: corporate and consumer losses in emerging Europe By Egle Jakucionyte; Sweder van Wijnbergen
  4. Market power and long-term gas contracts: the case of Gazprom in Central and Eastern European Gas Markets By Chyong, C K.; Reiner, D; Aggarwal, D.
  5. Social Mobility and Social Regimes: Intergenerational Mobility in Hungary, 1949-2017 By , Rita; Bukowski,; Clark, Gregory; Gáspár, Attila
  6. The Effects of Shortening Potential Benefit Duration: Evidence from Regional Cut-Offs and a Policy Reform By Galecka-Burdziak, Ewa; Góra, Marek; Jessen, Jonas; Jessen, Robin; Kluve, Jochen
  7. Fiscal transfers, local government, and entrepreneurship By Danisewicz, Piotr; Ongena, Steven
  8. An Efficient Long-Run Economic Growth Strategy for Estonia By Amin Sokhanvar; Glenn P. Jenkins

  1. By: Goetz, Daniel; Rodnyansky, Alexander
    Abstract: Do firms respond to cost shocks by reducing the quality of their products? Using microdata from a large Russian retailer that refreshes its product line twice-yearly, we document that higher quality products are more profitable than lower quality ones, but that the number of high quality products offered experiences a relative decrease after a large ruble devaluation in 2014. We show that rising firm costs-and not shrinking consumer incomes-explains the reallocation, and rationalize the data with a simple model that features consumer expenditure switching between high and low qualities. The reallocation to lower quality products reduces average pass-through by 15%.
    Keywords: crisis; Demand estimation; Devaluations; exchange rate pass-through; Quality
    JEL: E30 F14 F31 L11 L15 L16 L81 M11
    Date: 2020–09
  2. By: Dzung Bui (Philipps University Marburg); Lena Draeger (Leibniz University of Hannover); Bernd Hayo (Philipps University Marburg); Giang NghiemŸ (Leibniz University of Hannover)
    Abstract: In response to the economic crisis created by the COVID-19 pandemic, many governments provided financial assistance to households. Using representative consumer surveys conducted during the pandemic in 2020, we examine the effects of this fiscal policy instrument on households in two emerging economies, Vietnam and Thailand. Our paper contributes to the literature by studying consumer sentiment and durable spending responses to government financial support and the underlying transmission channels for these responses. We find that government support improves consumer sentiment and increases the likelihood of durable spending. Possible channels for these effects include more optimistic macroeconomic expectations and higher trust in the government's ability to deal with the pandemic, as well as less concern about the general impact of the crisis. We also find that financial support improves individuals' mental health and life satisfaction. Our results suggest that government financial support not only helps stimulate the economy but also enhances people's well-being more generally.
    Keywords: Fiscal policy; Financial support of households; Consumer sentiment; Durables spending; Expectations; Government trust; COVID-19; Thailand; Vietnam.
    JEL: E62 E71 D12 D83 H31
    Date: 2021
  3. By: Egle Jakucionyte (Bank of Lithuania, Vilnius University); Sweder van Wijnbergen (Tinbergen Institute, CEPR, University of Amsterdam)
    Abstract: This paper analyzes the macroeconomic consequences of foreign currency losses by banks, corporates and consumers in order to find whether some allocations of losses are better from a macroeconomic perspective than others. To that end, we construct a New Keynesian DSGE model with debt overhang for corporate borrowers, monitoring costs for household mortgage debt and leverage constraints for banks. The Hungarian experience at the end of 2008 and model estimation on Hungarian data motivate these financial frictions. Model simulation shows that making corporate borrowers bear currency risk results in worse macroeconomic outcomes than shifting currency mismatch losses to banks. Foreign currency mortgages to households, however, generate lower output than currency mismatch in the banking sector. The fact that households do not suffer from debt overhang, among other reasons, is driving this result.
    Keywords: Currency mismatch, household debt, corporate debt, leveraged banks, small open economy, Bayesian estimation
    JEL: E44 G21 F41 P2
    Date: 2020–04–22
  4. By: Chyong, C K.; Reiner, D; Aggarwal, D.
    Abstract: We explore a major European competition decision, the 2012-18 Gazprom case, using a global gas market simulation model. We find that access to LNG markets alone is insufficient to counterbalance Gazprom’s strategic behaviour; central and eastern Europe (CEE) needs to be well interconnected with bidirectional flow capability. ‘Swap deals’ created by the decision facilitate CEE market integration, while limiting Gazprom’s potential market power. Such deals may increase the diversity of contracted gas and number of market players, but do not improve physical supply diversity. In the next five years, swap deals could marginally impact negatively the utilization of strategic assets in CEE, but since Gazprom’s commitments expire by mid-2026, utilization of these strategic assets may fall considerably, especially if Gazprom withholds supplies. As an unintended consequence, CEE markets may disintegrate from the rest of Europe. Avoiding such outcomes will require further gas market reforms, particularly, market design for gas transportation.
    Keywords: Gazprom, European Commission, Market Power, Natural Gas, Security of Supply, Competition, Long-term contracts, Swap deals
    JEL: L95 L42 D47 D42 C63 P28
    Date: 2021–05–12
  5. By: , Rita; Bukowski,; Clark, Gregory; Gáspár, Attila
    Abstract: This paper measures social mobility rates in Hungary 1949-2017, for upper class and underclass families, using surnames to measure social status. In these years there were two very different social regimes. The first was the Hungarian People's Republic, 1949-1989, a Communist regime with an avowed aim of favouring the working class. Then the modern liberal democracy, 1989-2020, a free-market economy. We find four surprising things. First, social mobility rates were low for both upper- and lower-class families 1949-2017, with an underlying intergenerational status correlation of 0.6-0.8. Second, social mobility rates under communism were the same as in the subsequent capitalist regime. Third, the Romani minority throughout both periods showed even lower social mobility rates. And fourth, the descendants of the noble class in Hungary in the eighteenth century were still significantly privileged 1949 and later.
    Keywords: inequality; Social mobility; social regimes
    Date: 2020–09
  6. By: Galecka-Burdziak, Ewa (Warsaw School of Economics); Góra, Marek (Warsaw School of Economics); Jessen, Jonas (DIW Berlin); Jessen, Robin (RWI); Kluve, Jochen (KfW Development Bank)
    Abstract: This paper quantifies labour market effects of changes in the potential benefit duration (PBD). The empirical approach uses a particular unemployment insurance set-up from Poland that generates two sources of identifying variation: individual workers' PBD depends directly on the county unemployment rate relative to the national average—12 months of PBD above a cut-off of 125 per cent and 6 months below. In addition, this cut-off shifted from 125 to 150 per cent in a 2009 reform. We use i) the natural experiment generated by this reform, and ii) the sharp discontinuity generated by the cut-offs to estimate effects of shortening PBD on exit from benefit receipt, exit from unemployment, and entry into employment. The analysis is based on administrative data covering unemployment spells for prime age workers during the years 2006-2018. A one-month shorter PBD decreases average benefit duration by 0.5 months and average unemployment duration by 0.4 months. The PBD reduction by six months increased the job finding rate within the first 9 months by 6 percentage points. Using the stock of unemployed per county, we find evidence for positive market-level employment effects.
    Keywords: unemployment benefits, extended benefits, spell duration
    JEL: H55 J20 J65
    Date: 2021–04
  7. By: Danisewicz, Piotr; Ongena, Steven
    Abstract: Can local government spending spur entrepreneurial activity? To answer this question we study Poland where municipalities with lower tax revenues receive direct monetary grants from the national budget that vary at multiple pre-determined and non-manipulable thresholds. Employing a fuzzy regression discontinuity design, we find a positive impact of fiscal transfers on the number of firms, especially sole proprietorships and small firms. The impact is stronger in municipalities where the opposition is more involved in the legislative process or more parties are represented in the municipal council, and in regions where historical legacies shaped a more positive attitude towards entrepreneurship.
    Keywords: "Fuzzy" Regression Disconti-nuity Design; entrepreneurship; Fiscal Transfers; Local government spending
    JEL: E62 H71 H72 L26 P16
    Date: 2020–10
  8. By: Amin Sokhanvar (Graduate School of Economics and Management, Ural Federal University, Yekaterinburg, Russia); Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Ontario K7L)
    Abstract: International tourism and FDI inflows have generated detectable beneficial impacts on the economy of Estonia in the last decades. However, recently, poor international market conditions mostly caused by the trade war and COVID-19 pandemic have been a potential threat to these two factors. Besides, the poor performance of investments in recent years is behind the stagnation of productivity in Estonia. This study examines the dynamics of the effects of these factors on the rate of economic growth in Estonia and provides policy implications in line with sustained recovery. A Nonlinear ARDL technique is employed in this study to investigate the long-run effects of FDI and the degree of tourism specialization on economic growth rate. Our findings indicate that the economic growth rate of Estonia in the long-run has been positively affected by both the rate of FDI inflows and international tourism. This is the first study that employs a non-linear approach to investigate the dynamics of long-run effects of FDI and tourism specialization on the rate of economic growth in Estonia and provides policy implications in line with optimal growth strategy considering the economic structure, the current level of productivity, and available potentials in this economy.
    Keywords: International Tourism; FDI; Rate of Return on Investment; Productivity; Economic
    JEL: O11 O49 E22 E27 Z32
    Date: 2021–11–05

This nep-tra issue is ©2021 by Maksym Obrizan. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.