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on Macroeconomics |
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Issue of 2019‒08‒26
77 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Chodorow-Reich, Gabriel; Nenov, Plamen T.; Simsek, Alp |
| Abstract: | We provide evidence on the stock market consumption wealth effect by using a local labor market analysis and regional heterogeneity in stock market wealth. An increase in local stock wealth driven by aggregate stock prices increases local employment and payroll in nontradable industries and in total, while having no effect on employment in tradable industries. In a model with consumption wealth effects and geographic heterogeneity, these responses imply a marginal propensity to consume out of a dollar of stock wealth of 2.8 cents per year. We also use the model to quantify the aggregate effects of a stock market wealth shock when monetary policy is passive. A 20% increase in stock valuations, unless countered by monetary policy, increases the aggregate labor bill by at least 0.85% and aggregate hours by at least 0.28% two years after the shock. |
| Keywords: | consumption wealth effect; employment; marginal propensity to consume; monetary policy; nominal rigidities; regional heterogeneity; Stock Prices; Time-varying risk premium; wages |
| JEL: | E21 E32 E44 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13856&r=all |
| By: | Krouglov, Alexei |
| Abstract: | Presented here are simplified mathematical models for evaluation of the long-term investment values. Three scenarios were considered in a framework of the single product economy. The first scenario assesses an impact of capital investments (accrued on the product market with a constant acceleration) on an equity price on the equity market. The second scenario assesses impact of both capital investments (accrued on the product market with a constant acceleration) and quantitative easing (accrued on the equity market with a constant acceleration) on an equity price on the equity market. The third scenario assesses impact of both capital investments (accrued on the product market with a constant acceleration) and quantitative tightening (accrued on the equity market with a constant acceleration) on an equity price on the equity market. |
| Keywords: | Equity price; quantitative easing; mathematical models |
| JEL: | E22 E32 E44 |
| Date: | 2019–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95338&r=all |
| By: | Harmenberg, Karl (Department of Economics, Copenhagen Business School); Ôberg, Erik (Uppsala University) |
| Abstract: | Private consumption demand falls in response to increased unemployment risk during a recession, as households increase their precautionary savings and postpone irreversible durable investments. The postponement effect is seven times as large as the precautionary-savings effect in a calibrated buffer-stock savings model. In consequence, anticipation of future unemployment risk is more important than realized unemployment shocks in accounting for durable expenditure dynamics during recessions, while the opposite is true for nondurables. The importance of anticipation of future unemployment risk also means that having many ’hand-to-mouth’ households, who do not respond to changes in income risk, significantly dampens the demand response for durables to an adverse labor market shock. We find that the model elasticities of durable and nondurable expenditures with respect to unemployment risk are close to what we estimate in micro survey data. |
| Keywords: | household consumption; income risk; unemployment; business cycles |
| JEL: | E21 E24 E32 J64 |
| Date: | 2019–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsnow:2019_008&r=all |
| By: | Engbom, Niklas; Moser, Christian |
| Abstract: | We show that a minimum wage can have large effects throughout the earnings distribution, using a combination of theory and empirical evidence. To this end, we develop an equilibrium search model featuring empirically relevant worker and firm heterogeneity. We use the estimated model to evaluate a 119 percent increase in the real minimum wage in Brazil from 1996 to 2012. Direct and indirect effects of the policy account for a substantial decline in earnings inequality, with modest negative employment consequences. Using administrative linked employer-employee data and two household surveys, we find reduced-form evidence supporting the model predictions. |
| Keywords: | Worker and Firm Heterogeneity; Equilibrium Search Model; Monopsony; Spillover Effects; Minimum Wage |
| JEL: | E2 E20 E24 E25 E26 E6 E60 E61 E64 J3 J30 J31 J38 J42 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95384&r=all |
| By: | Sanjay R. Singh; Vaishali Garga (Department of Economics, University of California Davis) |
| Abstract: | We analyze the implications for monetary policy when deficient aggregate demand can cause a permanent loss in potential output, a phenomenon termed as output hysteresis. In the model, incomplete stabilization of a temporary shortfall in demand reduces the return to innovation, thus reducing TFP growth and generating a permanent loss in output. Using a purely quadratic approximation to welfare under endogenous growth, we derive normative implications for monetary policy. Away from the zero lower bound (ZLB), optimal commitment policy sets interest rates to eliminate output hysteresis. A strict inflation targeting rule implements the optimal policy. However, when the nominal interest rate is constrained at the ZLB, strict inflation targeting is sub-optimal and admits output hysteresis. A new policy rule that targets output hysteresis returns the output to the pre-shock trend and approximates the welfare gains under optimal com- mitment policy. A central bank unable to commit to future policy actions suffers from hysteresis bias: it does not offset past losses in potential output. |
| Keywords: | zero lower bound, optimal monetary policy, endogenous potential output, hysteresis bias |
| JEL: | E52 E32 O42 |
| Date: | 2019–08–18 |
| URL: | http://d.repec.org/n?u=RePEc:cda:wpaper:331&r=all |
| By: | Moritz Lenel; Monika Piazzesi; Martin Schneider |
| Abstract: | In modern monetary economies, most payments are made with inside money provided by payment intermediaries. This paper studies interest rate dynamics when payment intermediaries value short bonds as collateral to back inside money. We estimate intermediary Euler equations that relate the short safe rate to other interest rates as well as intermediary leverage and portfolio risk. Towards the end of economic booms, the short rate set by the central bank disconnects from other interest rates: as collateral becomes scarce and spreads widen, payment intermediaries reduce leverage, and increase portfolio risk. We document stable business cycle relationships between spreads, leverage, and the safe portfolio share of payment intermediaries that are consistent with the model. Structural changes, especially in regulation, induce low frequency shifts, such as after the financial crisis. |
| JEL: | E0 E3 E4 E5 G0 G1 G11 G12 G2 G21 G23 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26102&r=all |
| By: | Jules H. van Binsbergen; William F. Diamond; Marco Grotteria |
| Abstract: | We estimate risk-free interest rates unaffected by convenience yields on safe assets. We infer them from risky asset prices without relying on any specific model of risk. We obtain a term structure of convenience yields with maturities up to 2.5 years at a minutely frequency. The convenience yield on treasuries equals about 40 basis points, is larger below 3 months maturity, and quadruples during the financial crisis. In high-frequency event studies, conventional and unconventional monetary stimulus reduce convenience yields, particularly during the crisis. We further study convenience-yield-free CIP deviations, and we show significant bond return predictability related to convenience yields. |
| JEL: | E41 E43 E44 E52 E58 G12 G15 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26138&r=all |
| By: | Adam, Klaus; Merkel, Sebastian |
| Abstract: | We present a simple model that quantitatively replicates the behavior of stock prices and business cycles in the United States. The business cycle model is standard, except that it features extrapolative belief formation in the stock market, in line with the available survey evidence. Extrapolation amplifies the price effects of technology shocks and - in response to a series of positive technology surprises - gives rise to a large and persistent boom and bust cycle in stock prices. Boom-bust dynamics are more likely when the risk-free interest rate is low because low rates strengthen belief-based amplification. Stock price cycles transmit into the real economy by generating inefficient price signals for the desirability of new investment. The model thus features a `financial accelerator', despite the absence of financial frictions. The financial accelerator causes the economy to experience persistent periods of over- and under-accumulation of capital. |
| JEL: | E32 E44 G12 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13866&r=all |
| By: | Breitenlechner, Max; Nuutilainen, Riikka |
| Abstract: | We study the credit channel of Chinese monetary policy in a structural vector autoregressive framework. Using combinations of zero and sign restrictions, we identify monetary policy shocks linked to supply and demand responses in the loan market. Our results show that policy shocks coinciding with loan supply effects account for roughly 10 percent of output dynamics after two years, while loan demand effects represent up to 7 percent of output dynamics depending on the policy measure. The credit channel thus constitutes an important and economically relevant transmission channel for monetary policy in China. Monetary policy in China also accounts for a relatively high share of business cycle dynamics. |
| JEL: | C32 E44 E52 |
| Date: | 2019–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2019_015&r=all |
| By: | Fokin, Nikita; Polbin, Andrey |
| Abstract: | This paper estimates a bivariate econometric model to describe Russia’s real GDP while taking account of the Russian economy’s high dependence on oil prices, monetary policy regime change, and economic growth slowdown. We follow the theory of long-run neutrality of monetary policy and assume that the Bank of Russia’s monetary policy regime change in late 2014 has influenced only the short-run relationship between Russia’s GDP and oil prices, but long-run multiplier is invariant to monetary policy. The paper also attempts to take account of the economic growth slowdown in last decade. The model has demonstrated good forecasting performance. |
| Keywords: | monetary policy, Russian economy, terms of trade, ARX model, ECM model, structural breaks |
| JEL: | E32 E37 E52 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95306&r=all |
| By: | Belke, Ansgar; Göcke, Matthias |
| Abstract: | The interest rate is generally considered as an important driver of macroeconomic investment. As an innovation, this paper derives the exact shape of the “hysteretic” impact of changes in the interest rate on macroeconomic investment under the scenarios of both certainty and uncertainty. We capture the direct interest rate-hysteresis on the investments and the capital stock and, explicitly, of stochastic changes on the interest rate-investment hysteresis. Starting with hysteresis effects on a microeconomic level of a single firm, we apply an explicit aggregation procedure to derive the interest rate hysteresis effects on a macroeconomic level. Based on our simple model we are able to obtain some conclusions about the efficacy of a central bank’s interest rate policy, e.g. in times of low or even zero interest rates and high uncertainty, in terms of stimulating macroeconomic investment. |
| Keywords: | Forward guidance,interest rate,investment,Mayergoyz-Preisach model,monetary policy,path dependence,non-ideal relay,sunk-cost hysteresis,uncertainty,zero lower bound |
| JEL: | C61 E22 E44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:377&r=all |
| By: | Belke, Ansgar; Frenzel Baudisch, Coletta; Göcke, Matthias |
| Abstract: | The interest rate represents an important monetary policy tool to steer investment in order to reach price stability. Therefore, implications of the exact form and magnitude of the interest rate-investment nexus for the European Central Bank's effectiveness in a low interest rate environment gain center stage. We first present a theoretical framework of the hysteretic impact of changes in the interest rate on macroeconomic investment under certainty and under uncertainty to investigate whether uncertainty over future interest rates in the Euro area hampers monetary policy transmission. In this non-linear model, strong reactions in investment activity occur as soon as changes of the interest rate exceed a zone of inaction, that we call 'play' area. Second, we apply an algorithm describing path-dependent play-hysteresis to estimate investment hysteresis using data on domestic investment and interest rates on corporate loans for 5 countries of the Euro area in the period ranging from 2001Q1 to 2018Q1. We find hysteretic effects of interest rate changes on investment in most countries. However, their shape and magnitude differ widely across countries which poses a challenge for a unified monetary policy. By introducing uncertainty into the regressions, the results do not change much which may be due to the interest rate implicitly incorporating uncertainty effects in investment decisions, e.g. by risk premia. |
| Keywords: | European Central Bank,interest rate,investment,monetary policy,non-ideal relay,path-dependence,play-hysteresis,uncertainty |
| JEL: | C32 E44 E49 E52 F21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:374&r=all |
| By: | Jan Willem van den End |
| Abstract: | We show that through the safe asset channel the excess liquidity created by QE can lead to higher sovereign bond spreads in the euro area. This unintended effect is most likely in stressed markets when excess liquidity spurs demand for tradeable safe assets, pushing down the interest rate of these assets, which widens risk spreads. Outcomes of a panel regression model estimated for individual euro area countries confirm that the excess liquidity created by QE had an upward effect on sovereign bond spreads. It indicates that the safe asset channel dominates the usual portfolio rebalancing channel. For monetary policy the results imply that QE is not an appropriate instrument to address country specific shocks. |
| Keywords: | interest rates, central banks and their policies, monetary policy |
| JEL: | E43 E58 E52 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:647&r=all |
| By: | Auclert, Adrien; Bardoczy, Bence; Rognlie, Matthew; Straub, Ludwig |
| Abstract: | We propose a general and highly efficient method for solving and estimating general equilibrium heterogeneous-agent models with aggregate shocks in discrete time. Our approach relies on the rapid computation and composition of sequence-space Jacobians-the derivatives of perfect-foresight equilibrium mappings between aggregate sequences around the steady state. We provide a fast algorithm for computing Jacobians for heterogeneous agents, a technique to substantially reduce dimensionality, a rapid procedure for likelihood-based estimation, a determinacy condition for the sequence space, and a method to solve nonlinear perfect-foresight transitions. We apply our methods to three canonical heterogeneous-agent models: a neoclassical model, a New Keynesian model with one asset, and a New Keynesian model with two assets. |
| Keywords: | Computational Methods; General Equilibrium; Heterogeneous Agent; linearization |
| JEL: | C63 E21 E32 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13890&r=all |
| By: | Aaron G. Grech |
| Abstract: | The European Commission’s business and consumer surveys are the most extensive regular surveys of Maltese firms and households. The Economic Sentiment Indicator (ESI) for Malta is closely correlated with real GDP growth, particularly when one focuses on the first vintage of national accounts data. This suggests that the opinions expressed by economic agents are partly driven by news prevailing at the time. The sectoral confidence indicators that underpin the ESI are quite highly correlated, with construction sentiment being the most synchronised with sentiment in other sectors. In general, sectoral expectations on future activity appear to be less strongly correlated to changes in national accounts sectoral value added than survey responses to planned employment changes are to observed changes in sectoral employment. Maltese household economic expectations appear to be mostly reflective of current conditions and could be useful to forecast variables that are issued with some time lag, like real GDP. |
| JEL: | E20 C22 E37 |
| URL: | http://d.repec.org/n?u=RePEc:mlt:ppaper:0519&r=all |
| By: | Adrien Auclert; Bence Bardóczy; Matthew Rognlie; Ludwig Straub |
| Abstract: | We propose a general and highly efficient method for solving and estimating general equilibrium heterogeneous-agent models with aggregate shocks in discrete time. Our approach relies on the rapid computation and composition of sequence-space Jacobians—the derivatives of perfect-foresight equilibrium mappings between aggregate sequences around the steady state. We provide a fast algorithm for computing Jacobians for heterogeneous agents, a technique to substantially reduce dimensionality, a rapid procedure for likelihood-based estimation, a determinacy condition for the sequence space, and a method to solve nonlinear perfect-foresight transitions. We apply our methods to three canonical heterogeneous-agent models: a neoclassical model, a New Keynesian model with one asset, and a New Keynesian model with two assets. |
| JEL: | C63 E21 E32 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26123&r=all |
| By: | Atsushi Tanaka (School of Economics, Kwansei Gakuin University) |
| Abstract: | This study constructs a simple dynamic optimization model of a central bank and examines its optimal behavior after exiting quantitative easing using interest-bearing liabilities instead of selling assets and rapidly shrinking its balance sheet. With high interest payments on liabilities, the bank may be forced to expand the monetary base to maintain its solvency, which leads to higher inflation. The model shows when the bank faces such a situation and derives the optimal paths of the monetary base supply and liabilities to deal with this. The study applies the model to the Bank of Japan and examines how the bank can exit quantitative easing. |
| Keywords: | central bank, monetary base, inflation, quantitative easing, exit strategy, solvency. |
| JEL: | E52 E58 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:196&r=all |
| By: | Hye-Jin Cho (SU - Sorbonne Université) |
| Abstract: | This article seeks to understand how the monetary policy facilitates credit channels such as credit growth, credit creation and investment spreads. A major task is tackling asymmetric information in credit markets. A decline in wealth transfer from the lender to the borrower which raises the adverse selection problem, thus leads to decreased lending and finance investment spending. The simulation with two representative countries provides us with detailed evidence on savings and investment expressing supply and demand of loanable funds at the economic level; but this is largely ignored in the conventional macroeconomic analysis: e.g. in the Arrow-Debreu model, firms can fund all projects on a pay-as-you-go basis. Further investigation will be conducted for the lender as the principal how to face a low interest rate environment. JEL classification: E22, E32, E52 |
| Keywords: | credit rationing,low interest rate,excess liquidity,fixed investment scale |
| Date: | 2019–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02266107&r=all |
| By: | Obstfeld, Maurice |
| Abstract: | This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that U.S. monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest, râ??) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the U.S. economy from the disproportionate impact of U.S. monetary policy on the outside world. In themselves, global factors need not undermine a central bank's ability to control the price level over the long term -- after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path. |
| Keywords: | current account; financial conditions; monetary policy; natural real interest rate; open-economy Phillips curve; spillbacks |
| JEL: | E52 E58 F36 F41 G15 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13887&r=all |
| By: | Babina, Tania; Ma, Wenting; Moser, Christian; Ouimet, Paige; Zarutskie, Rebecca |
| Abstract: | Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms. |
| Keywords: | Young-Firm Pay Premium, Selection, Worker and Firm Heterogeneity, Firm Dynamics, Startups |
| JEL: | D2 D22 E2 E24 J3 J30 J31 M1 M13 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95382&r=all |
| By: | Franses, Ph.H.B.F. |
| Abstract: | Each month various professional forecasters give forecasts for next year's real GDP growth and many other variables. In terms of forecast updates, January is a special month, as then the forecast horizon moves to the following calendar year, and as such the observation is not a revision. Instead of deleting the January data when analyzing forecast updates, this paper proposes a periodic version of an often considered test regression, to explicitly include and model the January data. An application of this periodic model for many forecasts across a range of countries learns that apparently there is a January optimism effect. In fact, in January, GDP forecast updates are suddenly positive, and at the same time the forecast updates for unemployment are likewise negative. This optimism about the new year of the professional forecasters is however found to be detrimental to forecast accuracy. The main conclusion is that forecasts created in January for the next year need to be treated with care. |
| Keywords: | Professional forecasters, macroeconomic forecasting, weak-form efficiency, periodic, regression model, forecast updates, January effect |
| JEL: | C53 E27 E37 |
| Date: | 2019–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:118666&r=all |
| By: | Bassanin, Marzio; Faia, Ester; Patella, Valeria |
| Abstract: | Financial crises often originate in debt markets, where collateral constraints and opacity of asset values generate intrinsic instability. In such ambiguous contexts endogenous beliefs formation plays a crucial role in explaining asset price and leverage cycles. We introduce state-contingent ambiguity attitudes embedding ambiguity aversion and seeking, which endogenously induces pessimism (left-skewed beliefs) in recessions and optimism (right-skewed beliefs) in booms, in a model where borrowers face occasionally binding collateral constraints. We use GMM estimation with latent value functions to estimate the ambiguity attitudes process. By simulating a crisis scenario in our model we show that optimism in booms is responsible for higher asset price and leverage growth and pessimism in recessions is responsible for sharper de-leveraging and asset price bursts. Analytically and numerically (using global methods) we show that our state-contingent ambiguity attitudes coupled with the collateral constraints can explain relevant asset price and debt cycle facts around the unfolding of a ï¬ nancial crisis. |
| Keywords: | ambiguity attitudes; asset price cycle; kinked multiplier preferences; leverage cycle; occasionally binding constraints |
| JEL: | E0 E5 G01 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13875&r=all |
| By: | Noel Rapa; Abigail Marie Rapa |
| Abstract: | Pressures on Malta’s public infrastructure have increased significantly in recent years. Indeed, public capital stock-to-GDP ratio is estimated to stand below that in the EU. This note studies the impact of government investment using a New Keynesian general equilibrium model. Such models are especially useful in capturing both direct and indirect effects of government investment under different financing alternatives. Results indicate that in the short-to-medium run, debt-financed investment shocks are consistent with the highest effects on output. Financing public investment using taxes on returns to factors of production is consistent with the largest output loss. On the other hand, financing through consumption tax increases or cuts in government recurrent expenditure is the least distortionary. Results indicate that a sustained increase in government investment that bridges Malta’s public sector capital gap with the rest of the EU could increase long run output by between 6% and 11%. Results depend significantly on the financing option utilised to stabilise public debt-toGDP, with the smallest output gains achieved under a strategy that seeks to fund outlays by increasing the tax rate on the return to capital or labour. Financing through EU structural or sovereign wealth funds can significantly minimise tax-induced output losses. |
| JEL: | E37 E62 H54 |
| URL: | http://d.repec.org/n?u=RePEc:mlt:ppaper:0719&r=all |
| By: | Louka T. Katseli (University of Athens); Anastasia Theofilakou (Bank of Greece and University of Athens); Kalliopi-Maria Zekente (Alpha Bank and University of Athens) |
| Abstract: | On theoretical grounds, a clear distinction exists between central bank independence and inflation aversion. In the conduct of monetary policy, both contribute to lower inflation. In this paper, we empirically re-examine the nexus between central bank independence and inflation for a large sample of advanced and developing countries over the period 1992-2014 by explicitly accounting for the effect of central bank inflation preferences on inflation developments. Our evidence suggests that both features matter for mitigating inflationary pressures, in line with the relevant theoretical studies. Central bank independence alone seems not to be a sufficient condition to curtail inflation; the expected inverse relationship between central bank independence and inflation appears to hold when we account for the (inflation) conservatism of the central bank. At the same time, higher central bank conservatism seems to result in lower inflationary pressures in the economy. Our results do not support the hypothesis of an interaction (either as substitutes of complements) between the degree of independence and conservatism of the central bank. |
| Keywords: | Central bank independence; inflation conservatism;System GMM |
| JEL: | E52 E58 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:265&r=all |
| By: | Agrippino, Silvia Miranda; Ricco, Giovanni |
| Abstract: | This paper discusses the conditions for identification in SVAR-IVs when only the shock of interest or a subset of the structural shocks can be recovered as a linear combination of the VAR residuals. This condition of partial invertibility is very general, often of empirical relevance, and less stringent than the standard full invertibility that is routinely assumed in the SVAR literature. We show that, under partial invertibility, the dynamic responses can be correctly recovered using an external instrument even when this correlates with leads and lags of other invertible shocks. We call this a limited lead-lag exogeneity condition. We evaluate our results in a simulated environment, and provide an empirical application to the case of monetary policy shocks. |
| Keywords: | Identification with External Instruments; Invertibility; monetary policy shocks; structural VAR |
| JEL: | C32 C36 E30 E52 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13853&r=all |
| By: | Lieb, Lenard (General Economics 2 (Macro)); Schuffels, Johannes (General Economics 2 (Macro)) |
| Abstract: | Research interest in the reaction of consumption to expected inflation has increased sharply in recent years due to efforts by central banks to kick-start demand through higher inflation expectations. We contribute to this literature by analyzing whether various components of households’ balance sheets determine how consumption reacts to expected inflation. Many channels are conceivable: an increase in inflation expectations can raise consumption through direct increases in expected real wealth, e.g. for households with nominal financial liabilities. By affecting the real interest rate, expected inflation can interact with wealth if only those households can adapt their consumption to current real interest rates that are not budget constrained or sufficiently liquid to shift funds between consumption and savings. We use household-level information on balance sheets, vehicle expenditures and inflation expectations from the Dutch Central Bank’s Household Survey. We find evidence for a relation between a household’s expected inflation and the probability to have positive expenditures on durables. This effect is stronger for households with low net worth. We find no evidence of such effects on the amount of durable expenditures. |
| JEL: | D84 E31 E21 |
| Date: | 2019–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2019022&r=all |
| By: | Merike Kukk; Alari Paulus; Karsten Staehr |
| Abstract: | This study is the first to provide comparative estimates of the extent of income underreporting by the self-employed across countries in Europe. The estimates are derived using the consumption method developed by Pissarides & Weber (1989) and the data from the 2010 wave of the harmonised EU Household Budget Survey. The estimations show that the share of income not reported by the selfemployed is relatively large in many European countries, although with substantial variation across the countries. There is some regional clustering, but the shares of underreporting appear not to be related to the development level of the countries. The results are robust to changes in the model specification, the estimation method, and the choice of instruments, but are somewhat sensitive to sample restrictions and the criterion used to define self-employed households |
| Keywords: | ncome underreporting, self-employment, EU countries, household budget surveys |
| JEL: | H26 E21 E26 H24 |
| Date: | 2019–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2018-04&r=all |
| By: | Alessandra Fogli; Veronica Guerrieri |
| Abstract: | Since the '80s the US has experienced not only a steady increase in income inequality, but also a contemporaneous increase in residential segregation by income. Using US Census data, we first document a positive correlation between inequality and segregation at the MSA level between 1980 and 2010. We then develop a general equilibrium overlapping generations model where parents choose the neighborhood where to raise their children and invest in their children's education. In the model, segregation and inequality amplify each other because of a local spillover that affects the returns to education. We calibrate the model using 1980 US data and the micro estimates of the effect of neighborhood exposure in Chetty and Hendren (2018). We then assume that in 1980 an unexpected permanent skill premium shock hits the economy and show that segregation contributes to 28% of the subsequent increase in inequality. |
| JEL: | D5 D63 E0 E24 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26143&r=all |
| By: | de Groot, Oliver; Haas, Alexander |
| Abstract: | Negative interest rates are a new (and controversial) monetary policy tool. This paper studies a novel signalling channel and asks whether negative rates can be 1) an effective and 2) an optimal policy tool. 1) We build a financial-friction new-Keynesian model in which monetary policy can set a negative reserve rate, but deposit rates are constrained by zero. All else equal, a negative rate contracts bank net worth and increases credit spreads (the costly "interest margin" channel). However, it also signals lower future deposit rates, even with current deposit rates constrained, boosting aggregate demand and net worth. Quantitatively, we find the signalling channel dominates, but the effectiveness of negative rates depends crucially on three factors: i) degree of policy inertia, ii) level of reserves, iii) zero lower bound duration. 2) In a simplified model we prove two necessary conditions for the optimality of negative rates: i) time-consistent policy setting, ii) preference for policy smoothing. |
| Keywords: | Monetary policy, Taylor rule, Forward guidance, Liquidity trap |
| JEL: | E5 E6 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95479&r=all |
| By: | Pietro Dindo; Andrea Modena; Loriana Pelizzon |
| Abstract: | This paper investigates the interdependence between the risk-pooling activity of the financial sector and: output, consumption, risk-free rate, and Sharpe ratio in a dynamic general equilibrium model of a productive economy. Due to their exposure to idiosyncratic shocks and market segmentation, heterogeneous households/entrepreneurs (h/entrepreneurs) are willing to mitigate their risk through a financial sector. The financial sector pools risky claims issued by different firms within its assets, faces an associated intermediation cost and, via leverage, provides a risk-free asset to h/entrepreneurs. Exogenous systematic shocks change the relative size of the financial sector, and thus the equilibrium amount of pooled risk, making financial leverage state-dependent and counter-cyclical. We study how this mechanism endogenously channels amplification of consumption and mitigation of output fluctuations. In equilibrium, financial sector leverage also determines counter-cyclical Sharpe ratios and pro-cyclical risk-free interest rates. Last, we investigate the relationship between the size of the financial sector, leverage, and welfare. We show that limiting financial sector leverage determines a sub-optimal pooling of idiosyncratic risk but fosters the growth rate of the h/entrepreneurs’ consumption. On the other side, when the financial sector is too large, it destroys too many resources after intermediation costs. Therefore, the h/entrepreneurs benefit the most when the financial sector is neither too small nor too big. |
| Keywords: | amplification, business cycle, financial frictions, leverage, risk pooling |
| JEL: | E13 E32 E69 G12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7772&r=all |
| By: | Viv B Hall (Victoria University of Wellington); C John McDermott (Motu Economic and Public Policy Research) |
| Abstract: | We examine the question of whether the rate of business insolvencies in New Zealand is related to overall macroeconomic conditions. In particular, our interest is in whether the rate of business insolvencies changed in the wake of the Global Financial Crisis (GFC). We find that there was a large increase in insolvencies in New Zealand following the onset of the GFC in 2008. We also find that the timing of the change did not occur uniformly over the country but occurred at different times in four key regional centres. Sharply rising relative costs were the most important macroeconomic factor influencing corporate insolvencies in New Zealand, Auckland, Waikato and Wellington, but have been immaterial in determining New Zealand’s total personal insolvencies. It is employment growth and house price inflation that have been significant in explaining total personal insolvencies. |
| Keywords: | Bankruptcy; business cycles; structural breaks; New Zealand; Global Financial Crisis |
| JEL: | G33 E32 R11 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:19_15&r=all |
| By: | Mele, Antonio; Obayashi, Yoshiki; Yang, Shihao |
| Abstract: | How valuable would it be to mitigate government debt volatility? This paper introduces a model that accounts for the complex structure of government bond volatility and provides predictions on the fair value of government bond variance swaps and derivatives referenced thereon. Our calibrated model predicts that expected volatilities frequently oscillate between episodes of backwardation and contango, a feature that is in stark contrast with dynamics observed in equity markets. We use the model in risk-management experiments and evaluate scenarios such as the reaction of the U.S. Treasury volatility curve to shocks including unanticipated Fed decisions or global economic imbalances. Unlike equity volatility dynamics, which may be specified exogenously without violating no-arbitrage conditions, government bond volatility must be consistent with the dynamics of the whole yield curve. The paper provides quasi-closed form solutions that can readily be implemented despite the high-dimensional no-arbitrage restrictions that underlie the model dynamics. |
| Keywords: | fixed income volatility; government bond variance swaps; information content of government bond volatility; Treasury markets |
| JEL: | E43 E44 G12 G13 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13874&r=all |
| By: | Daniel Borup (Aarhus University and CREATES); Erik Christian Montes Schütte (Aarhus University and CREATES) |
| Abstract: | We show that Google search activity on relevant terms is a strong out-of-sample predictor for future employment growth in the US over the period 2004-2018 at both short and long horizons. Using a subset of ten keywords associated with “jobs”, we construct a large panel of 173 variables using Google’s own algorithms to find related search queries. We find that the best Google Trends model achieves an out-of-sample R2 between 26% and 59% at horizons spanning from one month to a year ahead, strongly outperforming benchmarks based on a large set of macroeconomic and financial predictors. This strong predictability extends to US state-level employment growth, using state-level specific Google search activity. Encompassing tests indicate that when the Google Trends panel is exploited using a non-linear model it fully encompasses the macroeconomic forecasts and provides significant information in excess of those. |
| Keywords: | Google Trends, Forecast comparison, US employment growth, Targeting predictors, Random forests, Keyword search. |
| JEL: | C22 C53 E17 E24 |
| Date: | 2019–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2019-13&r=all |
| By: | Bakari, Sayef; Fakraoui, Nissar; Tiba, Sofien |
| Abstract: | This paper aims to investigate the nexus between domestic investment, exports, imports, and economic growth for the Brazilian economy during the period 1970-2017, using the VECM methodology. In the short-run, our empirical results pointed out that import, exports, and domestic investment cause economic growth. Also, economic growth causes exports. Exports, imports, and economic growth cause domestic investment. However, in the long-run, our results revealed that domestic investment and exports have a positive effect on economic growth. Also, imports have a negative effect on economic growth. The results recorded a positive impact of economic growth and imports on domestic investment. Exports have a negative effect on domestic investment. Finally, we record the absence of significant impact of economic growth, exports and domestic investment on imports, and economic growth, domestic investment, and imports on exports. Due to the importance of these aspects to the economic performance of Brazil, the policymakers are invited to orient these issues towards the sustainability facets to guarantee a sustained growth path. |
| Keywords: | Export, Import, Domestic Investment, Economic Growth, VECM, Brazil. |
| JEL: | E2 E22 E23 F1 F10 F13 F14 O4 O47 O54 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95528&r=all |
| By: | Frederico Belo; Vito Gala; Juliana Salomao; Maria Ana Vitorino |
| Abstract: | What are the economic determinants of a firm's market value? We answer this question through the lens of a generalized neoclassical model of investment with physical capital, quasi-fixed labor, and two types of intangible capital, knowledge and brand capital as inputs. We estimate the structural model using firm-level data on U.S. publicly traded firms and use the estimated parameter values to infer the contribution of each input for explaining firm's market value in the last four decades. The model performs well in explaining both cross-sectional and time-series variation in firms' market values across industries, with a time-series R 2 of up to 61%, and a cross-sectional R 2 of up to 95%. The relative importance of each input for firm value varies across industries and over time. On average, physical capital accounts for 30% to 40% of firm's market value, installed labor force accounts for 14% to 22%, knowledge capital accounts for 20% to 43%, and brand capital accounts for 6% to 25%. The importance of physical capital for firm value decreased in the last decades, while the importance of knowledge capital increased, especially in high-tech industries. Overall, our analysis provides direct empirical evidence supporting models with multiple capital inputs as main sources of firm value, and shows the importance of the non-physical capital inputs for firm value. |
| JEL: | D21 D22 E22 E24 G12 G32 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26112&r=all |
| By: | International Monetary Fund |
| Abstract: | After more than a decade of high growth with low inflation, Lao P.D.R. is solidifying its progress towards graduating from the Least Developed Country (LDC) status. However, more than one fifth of the population remains poor, regional disparities are persistent, and recurring natural disasters pose risks for poverty reduction. A large current account deficit, low level of reserves, a high level of debt, managed exchange rate, and a dollarized banking system amplify macro-vulnerabilities. The authorities recognize the current economic challenges and their comprehensive reform programs aim at rebalancing the economy from a resource-based to a more diversified growth model by investing in human development and improving competitiveness. |
| Keywords: | Financial and Monetary Sector;External sector;Economic growth;Financial soundness indicators;Economic indicators;PPPs,percent of GDP,Proj,FDI,percent change |
| Date: | 2019–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/267&r=all |
| By: | International Monetary Fund |
| Abstract: | Since 2014—supported by a Fund program that expired in December 2017—Honduras has reduced macroeconomic imbalances, institutionalized fiscal prudence, and laid the groundwork for a modern monetary policy framework. The authorities are committed to maintain prudent policies and to build on previous achievements to make progress in solving long-standing issues. In this context, they have requested a new Fund program—to be treated as precautionary—as an anchor to support their economic and institutional reforms, which aim at increasing the quality of fiscal policy and improving governance and the business environment. |
| Date: | 2019–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/236&r=all |
| By: | Buchholz, Manuel; Schmidt, Kirsten; Tonzer, Lena |
| Abstract: | This paper investigates how declines in the deposit facility rate set by the ECB affect euro area banks' incentives to hold reserves at the central bank. We find that, in the face of lower deposit rates, banks with a more interest-sensitive business model are more likely to reduce reserve holdings and allocate freed-up liquidity to loans. The result is driven by wellcapitalized banks in the non-GIIPS countries of the euro area. This reveals that conventional monetary policy instruments have limited effects in restoring monetary policy transmission during times of crisis. |
| Keywords: | bank portfolio,central bank reserves,monetary policy |
| JEL: | E52 G11 G21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:272019&r=all |
| By: | NTUNGILA, Floribert; PINSHI, Christian P. |
| Abstract: | With the recent fall in commodity prices, the super-dependent economies of commodities, including the Democratic Republic of the Congo (DRC) have been shaken, especially as these countries consider commodity as manna falling from the sky. Movements in commodity prices have led to significant fluctuations. This article analyzes the short and long-term sensitivity of the Congolese economy to fluctuations in commodity prices and verifies the resource curse hypothesis in the DRC. Using the fully modified least squares method (FM-OLS), we estimated the error correction model. Our conclusions suggest that the Congolese economy suffers adverse effects on short and long-term commodity price shocks. The readjustment of the economy is slow and long. The national economy does not enjoy the benefits of commodity prices, but is only suffering the devastating effects. Hence the commodity do not seem like a manna of hope and the economy remains in an eternal whirlwind of curse. As the DRC does not have a solid fiscal space, the challenge is to find pragmatic, cost-effective solutions. Economic procyclicality weighs on political strategies, and ambitious processes of structural reforms are beneficial. |
| Keywords: | commodity prices, economic growth |
| JEL: | E01 F44 Q02 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95409&r=all |
| By: | Loermann, Julius; Maas, Benedikt |
| Abstract: | We use a machine learning approach to forecast the US GDP value of the current quarter and several quarters ahead. Within each quarter, the contemporaneous value of GDP growth is unavailable but can be estimated using higher-frequency variables that are published in a more timely manner. Using the monthly FRED-MD database, we compare the feedforward artificial neural network forecasts of GDP growth to forecasts of state of the art dynamic factor models and the Survey of Professional Forecasters, and we evaluate the relative performance. The results indicate that the neural network outperforms the dynamic factor model in terms of now- and forecasting, while it generates at least as good now- and forecasts as the Survey of Professional Forecasters. |
| Keywords: | Nowcasting; Machine learning; Neural networks; Big data |
| JEL: | C32 C53 E32 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95459&r=all |
| By: | Jonathan Benchimol (Bank of Israel); Lahcen Bounader (International Monetary Fund, Washington, D.C., United States) |
| Abstract: | Abstract We build a behavioral New Keynesian model that emphasizes different forms of myopia for households and firms. By examining the optimal monetary policy within this model, we find four main results. First, in a framework where myopia distorts agents' inflation expectations, the optimal monetary policy entails implementing inflation targeting. Second, price level targeting emerges as the optimal policy under output gap, revenue, or interest rate myopia. Given that bygones are not bygones under price level targeting, rational inflation expectations are a minimal condition for optimality in a behavioral world. Third, we show that there are no feasible instrument rules for implementing the optimal monetary policy, casting doubt on the ability of simple Taylor rules to assist in the setting of monetary policy. Fourth, bounded rationality may be associated with welfare gains. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:boi:wpaper:2019.07&r=all |
| By: | International Monetary Fund |
| Abstract: | The Dominican economy has enjoyed strong growth since 2014 (6.6 percent, the highest in the Western Hemisphere), supported by stable macroeconomic and financial policies, and a favorable external environment. Growth has generally been above potential, but inflation remains muted and the external position is in line with fundamentals. The strong economic and policy performance has strengthened resilience to downside risks, but vulnerabilities remain. The fiscal position is under moderate sustainability and affordability pressures; key structural bottlenecks have not been addressed; and social outcomes can be further strengthened. Upcoming elections in 2020 are likely to dominate the near-term policy landscape. |
| Date: | 2019–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/273&r=all |
| By: | Olivier Coibion; Dimitris Georgarakos; Yuriy Gorodnichenko; Maarten van Rooij |
| Abstract: | We implement a survey of Dutch households in which random subsets of respondents receive information about inflation. The resulting exogenously generated variation in inflation expectations is used to assess how expectations affect subsequent monthly consumption decisions relative to those in a control group. The causal effects of elevated inflation expectations on non-durable spending are imprecisely estimated but there is a sharp negative effect on durable spending. We provide evidence that this is likely driven by the fact that Dutch households seem to become more pessimistic about their real income as well as aggregate spending when they increase their inflation expectations. There is little evidence to support the idea that the degree to which respondents change their beliefs or their spending in response to information treatments depends on their level of cognitive or financial constraints. |
| JEL: | C83 D84 E31 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26106&r=all |
| By: | Alina K. Bartscher; Moritz Kuhn; Moritz Schularick |
| Abstract: | Using new long-run microdata, this paper studies wealth and income trends of college and non-college households in the United States since 1956. We document the emergence of a substantial college wealth premium since the 1980s, which is considerably larger than the college income premium. Over the past four decades, the wealth of American households with a college-educated head has tripled. By contrast, the wealth of non-college households has barely grown in real terms over the same period. Part of the rising wealth gap can be traced back to systematic portfolio differences between college and non-college households that give rise to different exposures to asset price changes. Non-college households have a lower exposure to the equity market and have profited much less from the recent surge in the stock market. We also discuss the importance of financial literacy and business ownership for the increase in wealth inequality between college and non-college households. |
| Keywords: | wealth, inequality, education, college wealth premium |
| JEL: | I24 E21 D31 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7726&r=all |
| By: | Bartscher, Alina; Kuhn, Moritz; Schularick, Moritz |
| Abstract: | Using new long-run micro data, this paper studies wealth and income trends of college and non-college households in the United States since 1956. We document the emergence of a substantial college wealth premium since the 1980s, which is considerably larger than the college income premium. Over the past four decades, the wealth of American households with a college-educated head has tripled. By contrast, the wealth of non-college households has barely grown in real terms over the same period. Part of the rising wealth gap can be traced back to systematic portfolio differences between college and non-college households that give rise to different exposures to asset price changes. Non-college households have a lower exposure to the equity market and have profited much less from the recent surge in the stock market. We also discuss the importance of financial literacy and business ownership for the increase in wealth inequality between college and non-college households. |
| Keywords: | college wealth premium; education; inequality; Wealth |
| JEL: | D31 E21 I24 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13864&r=all |
| By: | Matthew E. Kahn; Kamiar Mohaddes; Ryan N.C. Ng; M. Hashem Pesaran; Mehdi Raissi; Jui-Chung Yang |
| Abstract: | We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labour productivity is affected by country-specific climate variables—defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by 7.22 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to 1.07 percent. These effects vary significantly across countries. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labor productivity and employment. |
| JEL: | E27 Q54 R11 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26167&r=all |
| By: | Ludger Schuknecht |
| Abstract: | The paper analyses the linkages from financial developments to public finances. It maps and discusses the transmission channels to fiscal variables. These channels include asset prices, financing conditions, balance sheets of banks, non-banks and central banks and international linkages. The study argues that the fiscal effects via each and all these channels can be very serious in magnitude and can put the sustainability of public finances at risk. However, there is only limited in–depth analysis of these channels and risks. |
| Keywords: | public debt, deficits, financial stability, fiscal financial linkages, sustainability, asset prices |
| JEL: | E62 G01 H63 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7776&r=all |
| By: | Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria) |
| Abstract: | Nigeria adopted the Structural Adjustment Programme (SAP) in 1986 after the crash in world oil price in the early 1980s. Financial reforms are part of the reforms implemented during the SAP. Since, industrialisation is seen as an engine of growth, we conduct an empirical assessment of the effects of financial sector reforms on industrialisation in Nigeria using an annual time series data over 1981 - 2015. Using an autoregressive distributed lag (ARDL) model, our findings show that financial reforms have a positive and significant impact on industrialisation. |
| Keywords: | Financial reforms, Financial repression, Industrialisation, ARDL bounds test |
| JEL: | C32 E44 O14 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:abh:wpaper:19/014&r=all |
| By: | Martin, Ian; Papadimitriou, Dimitris |
| Abstract: | We present a dynamic model featuring risk-averse investors with heterogeneous beliefs. Individual investors have stable beliefs and risk aversion, but agents who were correct in hindsight become relatively wealthy; their beliefs are overrepresented in market sentiment, so "the market" is bullish following good news and bearish following bad news. Extreme states are far more important than in a homogeneous economy. Investors understand that sentiment drives volatility up, and demand high risk premia in compensation. Moderate investors supply liquidity: they trade against market sentiment in the hope of capturing a variance risk premium created by the presence of extremists. |
| Keywords: | Excess Volatility; heterogeneous beliefs; sentiment; Speculation; target prices |
| JEL: | E44 G02 G11 G12 G13 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13857&r=all |
| By: | Hector Perez-Saiz; Jemma Dridi; Tunc Gursoy; Mounir Bari |
| Abstract: | We propose a simple macroeconomic model with input-output sectoral linkages based on Acemoglu et al. (2016) to quantify how changes in aggregate demand due to additional income from household’s remittances propagates through the network of input-output linkages in Sub-Saharan African countries. We first propose two network centrality measures to assess the role of some sectors as key input providers in the economy. Then, we use these measures to quantify the effect of sectoral linkages on sectoral and total output following an increase in remittances inflows. Our empirical results suggest that the effects of remittances on recipient economies increase with the degree of linkages across sectors, which is especially prominent in the case of the financial intermediation sector. Our paper contributes to the emerging macroeconomic literature on the propagation of shocks across sectors and the implications for the whole economy. |
| Date: | 2019–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/175&r=all |
| By: | Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Luigi Pistaferri; Maarten van Rooij |
| Abstract: | We use the responses of a representative sample of Dutch households to survey questions that ask how much their consumption would change in response to unexpected, permanent, positive or negative shocks to their home value. The average MPC is in the 2.1-4.7% range, in line with econometric estimates that use housing wealth and consumption realizations. However, our analysis uncovers significant sample heterogeneity, with over 90% of the sample reporting no consumption adjustment to positive or negative wealth shocks. The relation between the MPC from wealth shocks and cash-on-hand is negative, consistent with models with precautionary saving and liquidity constraints. |
| Keywords: | Wealth Shocks; Marginal Propensity to Consume; Housing; Heterogeneity |
| JEL: | D12 D14 E21 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:645&r=all |
| By: | Eric Monnet; Miklos Vari |
| Abstract: | This paper explores what history can tell us about the interactions between macroprudential and monetary policy. Based on numerous historical documents, we show that liquidity ratios similar to the Liquidity Coverage Ratio (LCR) were commonly used as monetary policy tools by central banks between the 1930s and 1980s. We build a model that rationalizes the mechanisms described by contemporary central bankers, in which an increase in the liquidity ratio has contractionary effects, because it reduces the quantity of assets banks can pledge as collateral. This effect, akin to quantity rationing, is more pronounced when excess reserves are scarce. |
| Date: | 2019–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/176&r=all |
| By: | Dirk Bezemer; Anna Samarina |
| Abstract: | Does financial development increase income inequality? Ambiguous answers to this question may be due to over-aggregation of 'financial development'. In a sample of 40 developed economies over 1990-2013, we study the effects on income inequality of different components of financial development. There was a shift in bank credit allocation, away from supporting investments by non-financial firms and towards financing real estate markets ('debt shift'). In system-GMM estimations, we find that mortgage credit increases income inequality while credit to non-financial business reduces inequality. The effect of business credit is conditional on macroeconomic and labor market factors related to broader income formation, such as wage share, investment, trade openness, and labor force participation. House prices and the size of the real estate sector condition the impact of mortgage credit on income inequality. |
| Keywords: | income inequality; financial development; debt shift |
| JEL: | E51 G21 I30 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:646&r=all |
| By: | Kristina Barauskaite (Bank of Lithuania & ISM University of Management and Economics); Anh D. M. Nguyen (Bank of Lithuania & Vilnius University) |
| Abstract: | This study investigates the direct and intersectoral network effects of idiosyncratic TFP shocks on sectors’ growth in the context of US manufacturing industries. To deal with the potential endogeneity of TFP, we propose a novel set of instruments for contemporaneous regressors. These instruments are technology shocks identified via sign restriction from sectoral SVAR models. Using US input-output tables and industry-level data, we quantify direct and network-based effects of the shocks. Our results show that idiosyncratic technology shocks propagate mostly downstream the network. In addition, we capture strong contemporaneous direct effects of the shocks. |
| Keywords: | Input-Output Linkages, Network, Instrumental Variables, Idiosyncratic TFP Shocks, Sectoral Growth, US Manufacturing Industry |
| JEL: | C36 C67 D24 E32 |
| Date: | 2019–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:65&r=all |
| By: | Filippou, Ilias; Taylor, Mark P |
| Abstract: | We evaluate the cross-sectional predictive ability of a forward-looking monetary policy reaction function, or Taylor rule, in both statistical and economic terms. We find that investors require a premium for holding currency portfolios with high implied interest rates while currency portfolios with low implied rates offer negative currency excess returns. Our forward-looking Taylor rule signals are orthogonal to current nominal interest rates and disconnected from carry trade portfolios and other currency investment strategies. The profitability of the Taylor rule portfolio spread is mainly driven by inflation forecasts rather than the output gap and is robust to data snooping and a wide range of robustness checks. |
| Keywords: | currency risk premium; data snooping bias; foreign exchange; Taylor rules |
| JEL: | F31 G11 G15 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13835&r=all |
| By: | Dellas, Harris; Tavlas, George |
| Abstract: | Lloyd Mints has long been considered a peripheral figure in the development of monetary economics at the University of Chicago. We provide evidence showing that the standard assessment of Mints's standing in Chicago monetary economics -- and in American monetary economics more broadly -- is mistaken. In light of the originality and the breadth of his monetary contributions, and given the degree to which those contributions shaped part of Milton Friedman's monetary framework and were pushed forward by Friedman, we argue that, far from being a peripheral figure in the development of Chicago monetary economics, Mints played a catalytic role. |
| Keywords: | Chicago monetary tradition; Lloyd Mints; Milton Friedman; Monetarism |
| JEL: | B22 E52 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13858&r=all |
| By: | Karolis Liaudinskas (Universitat Pompeu Fabra); Kristina Grigaite (Bank of Lithuania) |
| Abstract: | We use loan-level data and a novel identification setting – closures of banks – to study how forced break-ups of lending relationships affect firms’ borrowing costs. We find that after a financially distressed bank closed and its best borrowers were exogenously forced to switch, their borrowing costs dropped steeply and converged to the market’s average. We document no such effect when a healthy bank closed. This suggests that distressed banks can use informational monopoly power to hold up and exploit their best borrowers. Apparently, closures of such banks can release the best-quality firms from the hold-up and allow borrowing cheaper elsewhere. |
| Keywords: | relationship lending, hold-up, asymmetric information, bank closures, financial distress, switching costs |
| JEL: | D82 E51 G20 G21 G30 G33 L14 |
| Date: | 2019–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:64&r=all |
| By: | Harris Dellas (University of Bern); George Tavlas (Bank of Greece) |
| Abstract: | Lloyd Mints has long been considered a peripheral figure in the development of monetary economics at the University of Chicago. We provide evidence showing that the standard assessment of Mints’s standing in Chicago monetary economics -- and in American monetary economics more broadly -- is mistaken. In light of the originality and the breadth of his monetary contributions, and given the degree to which those contributions shaped part of Milton Friedman’s monetary framework and were pushed forward by Friedman, we argue that, far from being a peripheral figure in the development of Chicago monetary economics, Mints played a catalytic role. |
| Keywords: | Lloyd Mints; Milton Friedman; monetarism; Chicago monetary tradition |
| JEL: | B22 E52 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:264&r=all |
| By: | Tri Vi Dang; Gary B. Gorton; Bengt R. Holmstrom |
| Abstract: | Short-term debt that can serve as a medium of exchange is designed to be information insensitive. No one should be tempted to acquire private information to gain an informational advantage in trading that could destabilize the value of the debt. Short-term debt minimizes the incentive to acquire information among all securities of equal value backed by the same underlying asset. These features align with observed practice in money markets (markets for short-term debt). They are also consistent with financial crises occurring periodically. In the information view adopted here, financial crisis can occur when the collateral backing the short-term debt is thought to have lost enough value to raise doubts among the traders that some may acquire private information. The purpose of this paper is to review some of the burgeoning empirical literature that bears on the information view sketched above. We focus on evidence related to three key implications of information insensitive debt: (i) adjustments to external shocks will occur along non-price dimensions (less debt issued, higher haircuts, added collateral, etc); (ii) in a crisis some of the short-term debt turns information sensitive; (iii) money markets feature low transparency as well as purposeful opacity. |
| JEL: | D53 E3 G01 G1 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26074&r=all |
| By: | Michael D. Bordo; Edward S. Prescott |
| Abstract: | The decentralized structure of the Federal Reserve System is evaluated as a mechanism for generating and processing new ideas on monetary and financial policy. The role of the Reserve Banks starting in the 1960s is emphasized. The introduction of monetarism in the 1960s, rational expectations in the 1970s, credibility in the 1980s, transparency, and other monetary policy ideas by Reserve Banks into the Federal Reserve System is documented. Contributions by Reserve Banks to policy on bank structure, bank regulation, and lender of last resort are also discussed. We argue that the Reserve Banks were willing to support and develop new ideas due to internal reforms to the FOMC that Chairman William McChesney Martin implemented in the 1950s. Furthermore, the Reserve Banks were able to succeed at this because of their private-public governance structure, a structure set up in 1913 for a highly decentralized Federal Reserve System, but which survived the centralization of the System in the Banking Act of 1935. We argue that this role of the Reserve Banks is an important benefit of the Federal Reserve’s decentralized structure by allowing for more competition in ideas and reducing groupthink. |
| JEL: | B0 E58 G28 H1 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26098&r=all |
| By: | Martin Mosler; Niklas Potrafke; Markus Reischmann |
| Abstract: | We asked economic experts polled by the CESifo World Economic Survey how to handle the fiscal crisis in Greece in the year 2015. The sample includes about 850 experts from 110 countries. We find systematic differences in experts’ recommendations. Our results suggest that policy advice is related to an expert’s personal and country-level attributes. Country-level characteristics, especially credit default swaps as a measure of fiscal stability, predict views on whether Greece should exit the eurozone. An expert’s educational background, age and professional affiliation predict opinions on the credit programs of the International Monetary Fund. We propose that policymakers who seek balanced policy advice should consult experts from different countries and personal backgrounds. |
| Keywords: | Greece, Grexit, experts’ survey, public debt crisis, IMF, international organizations, policy advice |
| JEL: | H63 C83 H12 F53 E42 D72 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7777&r=all |
| By: | Bakari, Sayef; Fakraoui, Nissar; Sofien, Tiba |
| Abstract: | This paper aims to investigate the nexus between domestic investment, exports, imports, and economic growth for the Brazilian economy during the period 1970-2017, using the VECM methodology. In the short-run, our empirical results pointed out that import, exports, and domestic investment cause economic growth. Also, economic growth causes exports. Exports, imports, and economic growth cause domestic investment. However, in the long-run, our results revealed that domestic investment and exports have a positive effect on economic growth. Also, imports have a negative effect on economic growth. The results recorded a positive impact of economic growth and imports on domestic investment. Exports have a negative effect on domestic investment. Finally, we record the absence of significant impact of economic growth, exports and domestic investment on imports, and economic growth, domestic investment, and imports on exports. Due to the importance of these aspects to the economic performance of Brazil, the policymakers are invited to orient these issues towards the sustainability facets to guarantee a sustained growth path. |
| Keywords: | Export, Import, Domestic Investment, Economic Growth, VECM, Brazil. |
| JEL: | E22 F1 F10 F11 F13 F14 F43 O47 O54 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95474&r=all |
| By: | Kilian, Lutz; Zhou, Xiaoqing |
| Abstract: | We study the efficacy of releases from the U.S. Strategic Petroleum Reserve (SPR) within the context of fully specified models of the global oil market that explicitly allow for storage demand as well as unanticipated changes in the SPR. Using novel identifying strategies and evaluation methods, we examine seven questions. First, how much have exogenous shocks to the SPR contributed to the variability in the real price of oil? Second, how much would a one-time exogenous reduction in the SPR lower the real price of oil? Third, are exogenous SPR releases partially or fully offset by increases in private sector oil inventories and how does this response affect the transmission of SPR policy shocks? Fourth, how effective were actual SPR policy interventions, consisting of sequences of exogenous changes in the SPR, at lowering the real price of oil? Fifth, are there differences in the effectiveness of SPR emergency drawdowns and SPR exchanges? Sixth, how much did the creation and expansion of the SPR contribute to higher real oil prices? Finally, how much would selling half of the oil in the SPR, as recently proposed by the White House, lower the global price of oil (and hence the U.S. price of motor gasoline) and how much fiscal revenue would it generate? |
| Keywords: | counterfactual; crude oil; Expectations; Fiscal policy; oil inventories; Policy intervention; SPR; Storage |
| JEL: | E62 Q38 Q43 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13849&r=all |
| By: | Burstedde, Alexander; Werner, Dirk |
| Abstract: | Junge und gut ausgebildete Menschen sind besonders mobil. Seit 2004 ziehen sie zunehmend in die Städte und gründen ihre Familien dort. In der Folge steigt auf dem Land das Durchschnittsalter und es fehlt dort zunehmend an hochqualifizierten Arbeitskräften und Schulabgängern. Abwanderungsregionen gibt es in jedem Flächenland. In Ostdeutschland ist diese Entwicklung am weitesten fortgeschritten. Abwanderungsregionen sollten ihre Gestaltungsfreiräume dafür nutzen, junge Menschen zu halten sowie Unternehmen und Arbeitskräfte von außerhalb anzuwerben. Netzwerken aus regionalen Akteuren kommt hierbei eine Schlüsselrolle zu. Jungen Menschen sollten die beruflichen Perspektiven in ihrer Heimatregion frühzeitig aufgezeigt werden, um ihren Fortzug zu verhindern. Dazu ist die praxisnahe Berufsorientierung zu intensivieren. Die Verfügbarkeit und Erreichbarkeit von Berufsschulen sollte durch überregionale Kooperationen, Mobilitätshilfen und E-Learning verbessert werden. Erfolglose Ausbildungsbewerber und Arbeitsuchende sollten stärker in ihrer Mobilität und Qualifizierung unterstützt werden. Unternehmen können sich durch Employer Branding als attraktive Arbeitgeber aufstellen und das lokale Arbeitsangebot für ihre Berufe begeistern. Regionale Branchencluster können Wirtschaftsstandorte deutlich attraktiver machen. Start-up-Förderung und die Ansiedlung von Forschungseinrichtungen können dies begünstigen. Der Breitbandausbau ist eine zentrale Voraussetzung zur Anwerbung und Bindung von Unternehmen und Arbeitskräften. Digitalisierung und Automatisierung können genutzt werden, um die Wettbewerbsfähigkeit zu steigern und den Mangel an Arbeitskräften zu kompensieren. Wenn geeignete Maßnahmen innerhalb der betroffenen Regionen nicht in der Fläche umzusetzen sind, sollten sie auf zentrale Orte konzentriert werden. |
| JEL: | E24 J61 R23 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkrep:262019&r=all |
| By: | Saungweme, Talknice; Odhiambo, Nicholas M |
| Abstract: | This study examines the dynamic impact of aggregate public debt on economic growth in Zambia from 1970 to 2017. In the analysis, the study also estimated the relative impact of domestic public debt and foreign public debt on economic growth in Zambia. Using the autoregressive distributed lag (ARDL) bound testing methodology, the results show that aggregate public debt has a positive impact on economic growth in Zambia, both in the short run and in the long run. The empirical results further reveal that the relative impact of public debt on economic growth in Zambia is dependent on the type of debt under consideration and is time-invariant. Domestic public debt was seen to be negatively related to economic growth, while its foreign counterpart had a positive impact, both in the short run and in the long run. To ensure sustainable economic growth and sustainable public debt levels, the study recommends the country to, among other things, match financial resources with the country?s absorptive capacity; continuously and effectively manage its debt composition and structure to reduce currency and maturity risks; and to continue implementing structural and financial reforms that promote the efficient utilisation of public debt, such as, expanding the tradable sectors. |
| Keywords: | Public debt, domestic public debt, foreign public debt, economic growth, Zambia, ARDL |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:25666&r=all |
| By: | Margherita Borella; Mariacristina De Nardi; Fang Yang |
| Abstract: | In the U.S., both taxes and old age Social Security benefits depend on one's marital status and tend to discourage the labor supply of the secondary earner. To what extent are these provisions holding back female labor supply? We estimate a rich life-cycle model of labor supply and savings for couples and singles using the Method of Simulated Moments (MSM) on the 1945 and 1955 birth-year cohorts and we use it to evaluate what would happen without these provisions. Our model matches well the life cycle profiles of labor market participation, hours, and savings for married and single people and generates plausible elasticities of labor supply. Eliminating marriage-related provisions drastically increases the participation of married women over their entire life cycle, reduces the participation of married men after age 55, and increases the savings of couples in both cohorts, including the later one, which has similar participation to that of more recent generations. If the resulting government surplus were used to lower income taxation, there would be large welfare gains for the vast majority of the population. |
| JEL: | E21 H2 J22 J31 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26097&r=all |
| By: | Beverly Lapham; Ayman Mnasri (Qatar University) |
| Abstract: | We develop an open economy monetary model with heterogeneous households which is characterized by incomplete pass-through of exchange rate movements to import prices. Partial pass-through arises in our environment due to the presence of competitive search in international goods' markets. Under competitive search, agents choose a sub-market in which to exchange goods, where different sub-markets are characterized by different price and trading probability combinations. Preference and policy shocks which induce exchange rate movements cause households to choose a different sub-market for their purchases of traded goods--an extensive margin response. These responses mitigate the direct effect of nominal exchange rate changes on equilibrium traded goods' prices, thereby generating incomplete exchange rate pass-through to goods' prices. In the calibrated model, exchange rate pass-through due to foreign shocks ranges between 19% and 62%, which is in the range of import price pass-through estimates for developed economies. Due to risk aversion by households, the magnitude of pass-through depends on the size and direction of the initial shock, making the model consistent with the observed phenomenon of asymmetric pass-through. Importantly, by incorporating household heterogeneity, we are able to examine the role of precautionary savings in affecting pass-through, characterize how pass-through varies across different types of households, and examine the distributional effects of exchange rate movements. |
| Keywords: | Exchange Rate Pass-Through, Competitive Search, Monetary Policy |
| JEL: | F31 O24 E58 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1418&r=all |
| By: | Monnet, Eric |
| Abstract: | Many influential cliometric studies have examined historical interest rates in order to assess investment efficiency, the integration of markets, the economic effects of changes in policies or institutions, the sources of macroeconomic cycles, and so on. The common feature of this approach to economic history is that it is based on the crucial assumption that interest rates are the market prices at which demand meets supply. In this perspective, most debates focus on how to calculate yields or compare different rates of return on capital. Cliometricians developed innovative methods to construct yields and lending rates that were not specified in historical sources. It is only quite recently that economic historians have turned to cases where interest rates are not market-clearing prices. In such cases, there is little connection between interest rates and the state of the economy. Highlighting market imperfections, some recent studies have challenged earlier historical interpretations that overlooked the potential disconnection between prices (interest rates) and quantities. They offer new insights into the historical functioning of credit markets, central banking and government intervention in financial systems. |
| Keywords: | central bank; interest rates; market clearing (rationing); usury law; yield |
| JEL: | E4 N1 N2 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13896&r=all |
| By: | Hall, Viv; McDermott, John |
| Abstract: | We examine the question of whether the rate of business insolvencies in New Zealand is related to overall macroeconomic conditions. In particular, our interest is in whether the rate of business insolvencies changed in the wake of the Global Financial Crisis (GFC). We find that there was a large increase in insolvencies in New Zealand following the onset of the GFC in 2008. We also find that the timing of the change did not occur uniformly over the country but occurred at different times in four key regional centres. Sharply rising relative costs were the most important macroeconomic factor influencing corporate insolvencies in New Zealand, Auckland, Waikato and Wellington, but have been immaterial in determining New Zealand’s total personal insolvencies. It is employment growth and house price inflation that have been significant in explaining total personal insolvencies. |
| Keywords: | Bankruptcy, Business cycles, Structural breaks, New Zealand, Global Financial Crisis, |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:vuw:vuwecf:8251&r=all |
| By: | Mariarosaria Comunale |
| Abstract: | In this paper, we investigate the Exchange Rate Pass-Through (ERPT) to import and consumer prices in the three Baltic states. We apply reduced form equations first. Then, to look at measures of shock-dependent ERPT, we use Bayesian VARs with zero and sign restrictions and a local projection exercise, using common euro area shocks. We find that results from reduced form equations are in line with the ERPT literature. As for shock-dependent ERPTs, the magnitudes are overall bigger than in the literature in the case of import prices. They get smaller for consumer prices and even smaller if we remove energy and food prices. |
| Keywords: | Exchange Rate Pass-Through, Baltic states, Shock dependence |
| JEL: | E31 F3 F41 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2019-60&r=all |
| By: | International Monetary Fund |
| Abstract: | Tropical Cyclone Kenneth struck Comoros on April 23-24. The cyclone caused several casualties; displaced thousands; and damaged substantial parts of the building stock, infrastructure, and plants used in subsistence and commercial farming, thereby lowering productive capacity. Request for Fund support. Reflecting the large budgetary and external financing gaps arising from emergency assistance and reconstruction needs, the authorities are seeking financial assistance under the Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI) exogenous shock windows. Comoros’ qualification is based on urgent balance of payments needs following a severe natural disaster. In the attached letter, the authorities request a disbursement under the RCF and purchase under the RFI of a combined SDR 8.9 million, equivalent to 50 percent of quota, with the full amount to become available upon Board approval. Staff supports this request. IMF involvement in the international effort to assist Comoros will play also a catalytic role in securing grants from Comoros’ development partners. |
| Keywords: | External sector;Development;Public financial management;Credit;Economic policy;SOEs,RCF,Proj,cyclone,primary balance |
| Date: | 2019–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/272&r=all |
| By: | Georgiadis, Georgios; Schumann, Ben |
| Abstract: | Different export-pricing currency paradigms have different implications for a host of issues that are critical for policymakers such as business cycle co-movement, optimal monetary policy, optimum currency areas and international monetary policy co-ordination. Unfortunately, the literature has not reached a consensus on which pricing paradigm best describes the data. Against this background, we test for the empirical relevance of dominant-currency pricing (DCP). Specifically, we first set up a structural three-country New Keynesian dynamic stochastic general equilibrium model which nests DCP, producer-currency pricing (PCP) and local-currency pricing (LCP). In the model, under DCP the output spillovers from shocks that appreciate the US dollar multilaterally decline with an economy’s export-import US dollar pricing share differential, i.e. the difference between the share of an economy’s exports and imports that are priced in the dominant currency. Underlying this prediction is a change in an economy’s net exports in response to multilateral changes in the US dollar exchange rate that arises because of differences in the extent to which exports and imports are priced in the dominant currency. We then confront this prediction of DCP with the data in a sample of up to 46 advanced and emerging market economies for the time period from 1995 to 2018. Specifically, controlling for other cross-border transmission channels, we document that consistent with the prediction from DCP the output spillovers from US dollar appreciation correlate negatively with recipient economies’ export-import US dollar invoicing share differentials. We document that these findings are robust to considering US demand, US monetary policy and exogenous exchange rate shocks as a trigger of US dollar appreciation, as well as to accounting for the role of commodity trade in US dollar invoicing. JEL Classification: F42, E52, C50 |
| Keywords: | dominant-currency pricing, spillovers, US shocks |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20192308&r=all |
| By: | Marc A. C. Hafstead; Roberton C. Williams III |
| Abstract: | Political debates around environmental regulation often center around the effect of policy on jobs. Opponents decry the “job-killing” EPA and proponents point to “green jobs” as a positive policy outcome. And beyond the political debates, Congress requires the EPA to evaluate “potential losses or shifts of employment” that regulations under the Clean Air Act may cause. Yet there is a sharp disconnect between the political importance of the jobs question and the limited research on job effects of policy and general skepticism in the academic literature about the importance of those job effects for the costs and benefits of environmental regulation. In this paper, we discuss how the existing research on jobs and environmental regulations often falls short in evaluating these questions and consider recent new work that has attempted to address these problems. We provide an intuitive discussion of key questions for how job effects should enter into economic analysis of regulations. And, using an economic model from Hafstead, Williams, and Chen (2018), we evaluate a range of environmental regulations in both the short and long-run to develop a set of key stylized facts related to jobs and environmental regulations and to identify the key questions that current models can’t yet answer well. |
| JEL: | E24 H23 J64 Q52 Q58 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26093&r=all |
| By: | Schlag, Christian; Zeng, Kailin |
| Abstract: | It has been documented that vertical customer-supplier links between industries are the basis for strong cross-sectional stock return predictability (Menzly and Ozbas (2010)).We show that robust predictability also arises from horizontal links between industries, i.e., from the fact that industries are competitors or offer products, which are substitutes for each other. These horizontally linked industries exhibit positively correlated fundamentals. The signal derived from this type of connectedness is the basis for significant alpha in sorted portfolio strategies, and informed investors take the related information into account when they form their portfolios. We thus provide evidence of return predictability based on a new type of economic links between industries not captured in previous studies. |
| Keywords: | connected industries,information flow,return predictability |
| JEL: | G12 E44 D81 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:256&r=all |
| By: | Schiliro, Daniele |
| Abstract: | The present paper aims to contribute to the debate on what kind of governance and institutions are needed to ensure stability and growth in the Eurozone. In fact, despite the economic recovery, the Eurozone does not yet have effective institutions to ensure stability in the face of a new economic crisis, without forgetting legitimacy, transparency, and ability to meet the expectations of greater prosperity for euro area citizens. This paper intends to support the view of a deep rethinking of EMU with a different governance and different institutions. The new governance should imply a renewed political agreement among the member states not only of the Eurozone, but also of the whole European Union. This political agreement must lead to a reconsideration of the Maastricht parameters, to a different approach of the European institutions and, lastly, to the change of the EU Treaty. The paper will also discuss the role of institutions that must balance the European interests and those of member states with the aim to provide a consistent approach to stability and growth. |
| Keywords: | European Commission; ECB; rules-based system; economic convergence; banking union; financial stability; growth-oriented policies; transparency; legitimacy; treaty changes |
| JEL: | E60 F55 O43 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95428&r=all |
| By: | Blaes, Barno A.; Kraaz, Björn; Offermanns, Christian J. |
| Abstract: | We study the implications of the Eurosystem's expanded Asset Purchase Programme (APP) for the bank lending business of euro area banks with euro area non-financial corporations (NFCs) using microeconometric matching techniques. Based on confidential bank-level data on quantitative balance sheet items and interest rates as well as on qualitative survey responses to the Eurosystem's Bank Lending Survey, we identify the exposure of banks to the APP and corresponding effects on loan growth. We find that the APP was effective in stimulating the lending activity with NFCs for a subset of relatively sound banks. At the same time, our results show that there is a non-negligible number of banks with less healthy balance sheets which could not transfer the APP stimulus into more lending. Instead, such banks appear to have used the APP stimulus for consolidating their balance sheets, thereby also reducing their lending business with NFCs. This confirms the importance of accounting for the large degree of heterogeneity in the euro area banking sector in analyses of the effectiveness of monetary policy measures. |
| Keywords: | lending to non-financial corporations,bank-level data,bank heterogeneity,unconventional monetary policy,treatment effects,regression-adjusted matching |
| JEL: | E52 G21 C21 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:262019&r=all |
| By: | International Monetary Fund |
| Abstract: | After the slowdown in 2018, reflecting financial regulatory strengthening and softening external demand, growth stabilized in early 2019. Financial deleveraging and reduced interconnectedness between banks and non-banks have helped contain the build-up of financial risks, but vulnerabilities remain elevated and progress on rebalancing is mixed. While a moderate slowdown is expected in 2019, uncertainty around trade tensions remains high and risks are tilted to the downside. |
| Keywords: | Economic indicators;Financial statistics;Financial institutions;Fiscal policy;Gross domestic product;trade tension,percent of GDP,PBC,SOEs,off-budget |
| Date: | 2019–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:19/266&r=all |