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on Macroeconomics |
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Issue of 2019‒11‒11
120 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Martin, Fernando M. (Federal Reserve Bank of St. Louis) |
| Abstract: | Societies often rely on simple rules to restrict the size and behavior of governments. When fiscal and monetary policies are conducted by a discretionary and profligate government, I find that revenue ceilings vastly outperform debt, deficit and monetary rules, both in effectiveness at curbing public spending and welfare for private agents. However, effective revenue ceilings induce an increase in deficit, debt and inflation. Under many scenarios, including recurrent adverse shocks, the optimal ceiling on U.S. federal revenue is about 15% of GDP, which leads to welfare gains for private agents worth about 2% of consumption. Austerity programs should be sudden instead of gradual, and focus on lowering revenue to reduce spending rather than raising revenue to lower debt. |
| Keywords: | time-consistency; fiscal rules; discretion; government debt; inflation; deficit; institutional design; political frictions; austerity; debt sustainability |
| JEL: | E52 E58 E61 E62 |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-026&r=all |
| By: | Givens, Gregory |
| Abstract: | I interpret the empirical evidence on government spending multipliers using an equilibrium model of unemployment in which workers are not fully insured against the risk of job loss. Consumption of resources by the government affects aggregate spending along two margins: (i) an intensive margin owing to a fall in household wealth and (ii) an extensive margin that accounts for growth in the working population. At insurance levels below a certain threshold, the positive effects of (ii) dominate the negative effects of (i), leading to multipliers for private consumption and output that exceed zero and one. Similar results appear in a quantitative version of the model scaled to match estimates from micro data on the consumption cost of unemployment. |
| Keywords: | Government Spending Multipliers, Unemployment Insurance, Shirking Models |
| JEL: | E13 E24 E32 E62 H50 J41 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96811&r=all |
| By: | Andersson, Fredrik N. G. (Department of Economics, Lund University); Jonung, Lars (Department of Economics, Lund University) |
| Abstract: | This paper examines the Swedish experience of forward guidance 2007-2018. We focus on three interrelated issues: first, the effects of forward guidance on the discussion within the Board of Directors of the Riksbank, second, on the communication between the Riksbank and the public, and third, on the interest rate expectations held by various groups in Swedish society. We conclude that forward guidance has had negative effects on the dialogue within the Board as well on the communication between the Riksbank and the public. In addition, forward guidance has failed to affect expectations about interest rates in a systematic and significant way. We trace the roots of these consequences to the inability of the Riksbank to forecast its future policy rate three years ahead with any reasonable accuracy. The Riksbank has learned from this dismal performance and partially abandoned forward guidance, returning to a focus on the rate of inflation – as it did prior to the introduction of forward guidance. |
| Keywords: | forward guidance; central bank communication; interest rate forecasting; inflation targeting; the Riksbank; monetary policy; Sweden |
| JEL: | E40 E43 E47 E50 E52 E65 |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2019_014&r=all |
| By: | Gürkaynak, Refet S.; Karasoy-Can, Hatice Gökçe; Lee, Sang Seok |
| Abstract: | We show that firm liability structure and associated cash flow matter for firm behavior, and that financial market participants price stocks accordingly. Looking at firm level stock price changes around monetary policy announcements, we find that firms that have more cash flow exposure see their stock prices affected more. The stock price reaction depends on the maturity and type of debt issued by the firm, and the forward guidance provided by the Fed. This effect has remained intact during the ZLB period. Importantly, we show that the effect is not a rule of thumb behavior outcome and that the marginal stock market participant actually studies and reacts to the liability structure of firm balance sheets. The cash flow exposure at the time of monetary policy actions predicts future net worth, investment, and assets, verifying the stock pricing decision and also providing evidence of cash flow effects on firms' real behavior. The results hold for S&P500 firms that are usually thought of not being subject to tight financial constraints. |
| Keywords: | cash flow effect of monetary policy,investor sophistication,financial frictions,stock pricing |
| JEL: | E43 E44 E52 E58 G14 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:628&r=all |
| By: | Beniak, Patrycja |
| Abstract: | This paper provides one of the first comprehensive assessments of spillovers from 2015-2018 monetary policy tightening phase in the United States to emerging markets, as well as their determinants. It shows that the spillovers were concentrated in the fixed income markets, with a relatively small impact of Fed policy on foreign exchange and stock market price behaviour. The bulk of the impact on fixed income was channeled through rising interest rate expectations rather than an increase in term premia. The decisions on monetary policy tightening in the United States are found to be of less importance for EM pricing than the preceding speeches. The markets were differentiating across individual countries, yet, with exception of the Central and Eastern European economies, based not on macroeconomic fundamentals but the economic policies shaping them. On the top of that, the paper investigates the importance of economic and political risk perception as well as ECB policy for the magnitude of EM spillovers from the Fed tightening, finding both factors irrelevant. |
| Keywords: | unconventional monetary policy, central bank communication, international capital flows, emerging markets, open source software in support of policy analysis |
| JEL: | E43 E44 E52 F31 F36 F65 |
| Date: | 2019–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96545&r=all |
| By: | Bianchi, Francesco (Duke University); Melosi, Leonardo (Federal Reserve Bank of Chicago); Rottner, Matthias (European University) |
| Abstract: | Since the 2001 recession, average core inflation has been below the Federal Reserve’s 2% target. This deflationary bias is a predictable consequence of a low nominal interest rates environment in which the central bank follows a symmetric strategy to stabilize inflation. The deflationary bias increases if macroeconomic uncertainty rises or the natural real interest rate falls. An asymmetric rule according to which the central bank responds less aggressively to above-target inflation corrects the bias and allows inflation to converge to the central bank’s target. We show that adopting this asymmetric rule improves welfare and reduces the risk of self-fulfilling deflationary spirals. This approach does not entail any history dependence in setting the policy rate or any commitment to overshoot inflation after periods in which the lower bound constraint was binding. |
| Keywords: | Deflationary bias; asymmetric rules; opportunistic reflation; welfare; natural rate; zero lower bound; disanchoring of inflation expectations; inflation targeting; liquidity traps; macroeconomic uncertainty |
| JEL: | D83 E31 E52 E62 E63 |
| Date: | 2019–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2019-07&r=all |
| By: | Efrem Castelnuovo (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne) |
| Abstract: | This survey features three parts. The first one covers the recent literature on domestic (i.e., country-specific) uncertainty and offers ten main takeaways. The second part reviews contributions on the fast-growing strand of the literature focusing on the macroeconomic effects of uncertainty spillovers and global uncertainty. The last part proposes a novel measure of global financial uncertainty and shows that its unexpected variations are associated to statistically and economically fluctuations of the world business cycle. |
| Keywords: | Uncertainty, uncertainty shocks, spillovers, global financial uncertainty, world business cycle. |
| JEL: | C22 E32 E52 E62 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2019n13&r=all |
| By: | Ulate, Mauricio (Federal Reserve Bank of San Francisco) |
| Abstract: | After the Great Recession several central banks started setting negative nominal interest rates in an expansionary attempt, but the effectiveness of this measure remains unclear. Negative rates can stimulate the economy by lowering the rates that commercial banks charge on loans, but they can also erode bank profitability by squeezing deposit spreads. This paper studies the effects of negative rates in a new DSGE model where banks intermediate the transmission of monetary policy. I use bank-level data to calibrate the model and find that monetary policy in negative territory is between 60% and 90% as effective as in positive territory. |
| JEL: | E32 E44 E52 E58 G21 |
| Date: | 2019–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2019-21&r=all |
| By: | Jorda, Oscar (Federal Reserve Bank of San Francisco); Taylor, Alan M. (University of California, Davis) |
| Abstract: | Interest rates in major advanced economies have drifted down and in greater unison over the past few decades. A country’s rate of interest can be thought of as reflecting movements in the global neutral rate of interest, the domestic neutral rate, and the stance of monetary policy. Only the latter is controlled by the central bank. Estimates from a state space New Keynesian model show that central bank policy explains less than half of the variation in interest rates. The rest of the time, the central bank is catching up to trends dictated by productivity growth, demography, and other factors outside of its control. |
| JEL: | E43 E44 E52 E58 F36 N10 |
| Date: | 2019–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2019-20&r=all |
| By: | Jiao, Yang (Fudan University); Wen, Yi (Federal Reserve Bank of St. Louis) |
| Abstract: | Using Japanese firm data covering the Japanese financial crisis in the early 1990s, we find that exporters' domestic sales declined more significantly than their foreign sales, which in turn declined more significantly than non-exporters' sales. This stylized fact provides a new litmus test for different theories proposed in the literature to explain a trade collapse associated with a financial crisis. In this paper we embed the Melitz's (2003) model into a tractable DSGE framework with incomplete financial markets and endogenous credit allocation to explain both the Japanese firm-level data and the well-documented aggregate trade collapse during a financial crisis in world economic history. The model highlights the role of credit reallocation between non-exporters and exporters as the main mechanism in explaining exporters' behaviors and trade collapse following a financial crisis. |
| Keywords: | Credit Crunch; Credit Reallocation; Exporter Behavior; Financial Crisis; Heterogeneous Firms; Trade Collapse |
| JEL: | E22 E32 E44 F00 F10 F11 F41 |
| Date: | 2019–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-023&r=all |
| By: | Athreya, Kartik B.; Mather, Ryan; Mustre-del-Rio, Jose (Federal Reserve Bank of Kansas City); Sanchez, Juan M. |
| Abstract: | During the Great Recession, the collapse of consumption across the U.S. varied greatly but systematically with house-price declines. We find that financial distress among U.S. households amplified the sensitivity of consumption to house-price shocks. We uncover two essential facts: (1) the decline in house prices led to an increase in household financial distress prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of financial distress prior to the recession was positively correlated with house-price declines at the onset of the recession. Using a rich-estimated-dynamic model to measure the financial distress channel, we find that these two facts amplify the aggregate drop in consumption by 7 percent and 45 percent respectively. |
| Keywords: | Consumption; Credit Card; Mortgage; Bankruptcy; Foreclosure; Delinquency; Financial Distress; Great Recession |
| JEL: | D31 D58 E21 E44 G11 G12 G21 |
| Date: | 2019–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp19-06&r=all |
| By: | Athreya, Kartik B. (Federal Reserve Bank of Richmond); Mather, Ryan (Federal Reserve Bank of St. Louis); Mustre-del-Rio, Jose (Federal Reserve Bank of Kansas City); Sanchez, Juan M. (Federal Reserve Bank of St. Louis) |
| Abstract: | During the Great Recession, the collapse of consumption across the U.S. varied greatly but systematically with house-price declines. We find that financial distress among U.S. households amplified the sensitivity of consumption to house-price shocks. We uncover two essential facts: (1) the decline in house prices led to an increase in household financial distress prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of financial distress prior to the recession was positively correlated with house-price declines at the onset of the recession. Using a rich-estimated-dynamic model to measure the financial distress channel, we find that these two facts amplify the aggregate drop in consumption by 7 percent and 45 percent respectively. |
| Keywords: | Consumption; Credit Card; Mortgage; Bankruptcy; Foreclosure; Delinquency; Financial Distress; Great Recession |
| JEL: | D31 D58 E21 E44 G11 G12 G21 |
| Date: | 2019–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-025&r=all |
| By: | Bhandari, Anmol (University of Minnesota and NBER); Borovicka, Jaroslav (New York University, Federal Reserve Bank of Minneapolis, and NBER); Ho, Paul (Federal Reserve Bank of Richmond) |
| Abstract: | This paper develops a theory of subjective beliefs that departs from rational expectations, and shows that biases in household beliefs have quantitatively large effects on macroeconomic aggregates. The departures are formalized using model-consistent notions of pessimism and optimism and are disciplined by data on household forecasts. The role of subjective beliefs is quantified in a business cycle model with goods and labor market frictions. Consistent with the survey evidence, an increase in pessimism generates upward biases in unemployment and inflation forecasts and lowers economic activity. The underlying belief distortions reduce aggregate demand and propagate through frictional goods and labor markets. As a by-product of the analysis, solution techniques that preserve the effects of time-varying belief distortions in the class of linear solutions are developed. |
| Keywords: | Subjective beliefs; pessimism; business cycles; survey data |
| JEL: | D84 E32 |
| Date: | 2019–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:19-14&r=all |
| By: | Patrick Augustin; Mikhail Chernov; Lukas Schmid; Dongho Song |
| Abstract: | Since the Global Financial Crisis, rates on interest rate swaps have fallen below maturity matched U.S. Treasury rates across different maturities. Swap rates represent future uncollateralized borrowing between banks. Treasuries should be expensive and produce yields that are lower than those of maturity matched swap rates, as they are deemed to have superior liquidity and to be safe, so this is a surprising development. We show, by no-arbitrage, that the U.S. sovereign default risk explains the negative swap spreads over Treasuries. This view is supported by a quantitative equilibrium model that jointly accounts for macroeconomic fundamentals and the term structures of interest and U.S. credit default swap rates. We account for interbank credit risk, liquidity effects, and cost of collateralization in the model. Thus, the sovereign risk explanation complements others based on frictions such as balance sheet constraints, convenience yield, and hedging demand. |
| JEL: | C1 E43 E44 G12 H60 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26429&r=all |
| By: | Athreya, Kartik B. (Federal Reserve Bank of Richmond); Mather, Ryan (Federal Reserve Bank of St. Louis); Mustre-del-Rio, Jose (Federal Reserve Bank of Kansas City); Sanchez, Juan M. (Federal Reserve Bank of St. Louis) |
| Abstract: | During the Great Recession, the collapse of consumption across the US varied greatly but systematically with house-price declines. Our message is that household financial health matters for understanding this relationship. Two facts are essential for our finding: (1) the decline in house prices led to an increase in household financial distress (FD) prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of FD prior to the recession was positively correlated with house-price declines at the onset of the recession. We measure the power of the financial distress channel using a rich-estimated-dynamic model of FD. We find that these channels amplify the aggregate drop in consumption by 7% and 45%, respectively. |
| Keywords: | Consumption; Credit Card; Mortgage; Bankruptcy; Fore- closure; Delinquency; Financial Distress; Great Recession |
| JEL: | D31 D58 E21 E44 G11 G12 G21 |
| Date: | 2019–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:19-13&r=all |
| By: | Nakajima, Makoto (Federal Reserve Bank of Minneapolis); Smirnyagin, Vladimir (University of Minnesota) |
| Abstract: | We investigate cyclicality of variance and skewness of household labor income risk using PSID data. There are five main findings. First, we find that head's labor income exhibits countercyclical variance and procyclical skewness. Second, the cyclicality of hourly wages is mutted, suggesting that head's labor income risk is mainly coming from the volatility of hours. Third, younger households face stronger cyclicality of income volatility than older ones, although the level of volatility is lower for the younger ones. Fourth, while a second earner helps lower the level of skewness, it does not mitigate the volatility of household labor income risk. Meanwhile, government taxes and transfers are found to mitigate the level and cyclicality of labor income risk volatility. Finally, among heads with strong labor market attachment, the cyclicality of labor income volatility becomes weaker, while the cyclicality of skewness remains. |
| Keywords: | Labor income risk; Income inequality; Business cycles |
| JEL: | D31 E24 E32 H31 J31 |
| Date: | 2019–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:0022&r=all |
| By: | Nakajima, Makoto (Federal Reserve Bank of Philadelphia); Smirnyagin, Vladimir (University of Minnesota) |
| Abstract: | We investigate cyclicality of variance and skewness of household labor income risk using PSID data. There are five main findings. First, we find that head’s labor income exhibits countercyclical variance and procyclical skewness. Second, the cyclicality of hourly wages is muted, suggesting that head’s labor income risk is mainly coming from the volatility of hours. Third, younger households face stronger cyclicality of income volatility than older ones, although the level of volatility is lower for the younger ones. Fourth, while a second earner helps lower the level of skewness, it does not mitigate the volatility of household labor income risk. Meanwhile, government taxes and transfers are found to mitigate the level and cyclicality of labor income risk volatility. Finally, among heads with strong labor market attachment, the cyclicality of labor income volatility becomes weaker, while the cyclicality of skewness remains. |
| Keywords: | Labor income risk; income inequality; business cycles |
| JEL: | D31 E24 E32 H31 J31 |
| Date: | 2019–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:19-34&r=all |
| By: | Lewis, Daniel J. (Federal Reserve Bank of New York); Makridis, Christos (MIT Sloan School of Management); Mertens, Karel (Federal Reserve Bank of Dallas) |
| Abstract: | We use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. We first provide more general evidence that public confidence in the state of the economy reacts to certain types of macroeconomic news very quickly. Next, we show that surprises about the federal funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, perhaps because they are less well understood. We document heterogeneity in the responsiveness of sentiment across demographics. |
| Keywords: | monetary policy shocks; central bank communication; information rigidities; consumer confidence; high-frequency identification |
| JEL: | E30 E40 E50 |
| Date: | 2019–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:897&r=all |
| By: | Glover, Andrew (Federal Reserve Bank of Kansas City) |
| Abstract: | Can central banks use negative nominal interest rates to overcome the adverse effects of the zero lower bound? I show that negative rates are likely to be counterproductive in an expectations-driven liquidity trap. In a liquidity trap, firms expect low demand and cut prices, which leads the central bank to reduce nominal rates to their lower bound. If the resulting decline in real rates is not enough to stabilize demand, then the pessimism of price setters is fulfilled. Theoretically, the effect of a negative nominal rate is non-monotonic: a marginally negative rate is not enough to escape the liquidity trap, but allows for more pessimistic expectations and deflation, while a sufficiently negative rate eliminates the trap altogether. However, plausible estimates of the cost and benefits of price adjustments in the U.S. suggest that negative rates are contractionary in a liquidity trap, even at −100 percent. |
| Keywords: | Interest Rates; Nominal Negative Rates; Liquidity Traps |
| JEL: | E50 E52 E58 |
| Date: | 2019–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp19-07&r=all |
| By: | Lewis, Daniel J. (Federal Reserve Bank of New York); Makridis, Christos (MIT Sloan); Mertens, Karel (Federal Reserve Bank of Dallas) |
| Abstract: | We use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. We first provide more general evidence that public confidence in the state of the economy reacts to certain types of macroeconomic news very quickly. Next, we show that surprises to the Federal Funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, perhaps because they are less well understood. We document heterogeneity in the responsiveness of sentiment across demographics. |
| Keywords: | Monetary policy shocks; central bank communication; information rigidities; consumer confidence; high frequency identification |
| JEL: | E30 E40 E50 |
| Date: | 2019–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1906&r=all |
| By: | Petrella, Ivan (University of Warwick); Santoro, Emiliano (University of Copenhagen); Simonsen, Lasse P. (Birkbeck College) |
| Abstract: | TWe study how and to what extent inflation dynamics is shaped by time variation in the capacity of nominal demand to stimulate price adjustment. Using microdata underlying the UK consumer price index, we estimate a generalized Ss model of lumpy price adjustment, and condense large cross-sectional information on micro price changes into a measure of price flexibility. The latter displays sizeable time variation, which maps into a marked non-linearity of inflation dynamics: the half-life of the rate of inflation is twice as large in periods of relatively low flexibility, along with appearing remarkably close to the one observed in a linear setting. Changes in firms’ price-adjustment cost structure, as reflected in the adjustment hazard, are key to account for state dependence in price setting. Neglecting these facts may severely bias our understanding of inflation dynamics. |
| Keywords: | inflation ; price flexibility ; Ss models |
| JEL: | E30 E31 E37 C22 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkemf:28&r=all |
| By: | Giacomo Candian (HEC Montreal); Mikhail Dmitriev (Department of Economics, Florida State University) |
| Abstract: | Default recovery rates in the US are highly volatile and pro-cyclical. We show that stateof-the-art models with a Bernanke-Gertler-Gilchrist financial accelerator mechanism imply that recovery rates are flat over the cycle. We propose a model where financially constrained entrepreneurs face an idiosyncratic cost of redeploying liquidated capital. The resulting endogenous liquidation costs magnify the effect of the financial accelerator. We fit the model to US data and find that it explains a substantial amount of variation in recovery rates. Our mechanism alters the transmission of structural disturbances and leads to novel policy implications about the effectiveness of subsidies for liquidated assets. |
| Keywords: | Financial accelerator; financial frictions; recovery rates; liquidation costs |
| JEL: | C68 E44 E61 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2019_09_01&r=all |
| By: | Christopher Ball; Andreas Freytag; Miriam Kautz |
| Abstract: | The recent rise in populist governments has led to much work on the question “why now?”. Our work takes the next logical step by asking “what next?”. That is, given populists in power, what should we expect to be the economic consequences of populist regimes. To answer this, we characterize populist economic policies and argue that they generate an inverted J-curve effect, which we term a “walking stick” effect, in macro-level data, specifically GDP and inflation. To test this claim, we construct a unique data set on 13 Latin American countries from 1976 to 2012 and incorporate more modern and nuanced definitions of populism. Our contribution is both to test the walking stick claim and to present a novel dataset for studying the economic effects of populism. We find compelling evidence for our walking stick hypothesis in both GDP per capita and inflation, suggesting that the answer to “what next” is that we will see on average short-run booms followed by declines under populist regimes. |
| Keywords: | populism, Latin America, business cycle, political economy |
| JEL: | E39 E60 H11 N16 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7914&r=all |
| By: | Robert Rowthorn |
| Abstract: | This paper surveys some the main developments in macroeconomics since the anti-Keynesian counter-revolution 40 years ago. It covers both mainstream and heterodox economics. Amongst the topics discussed are: New Keynesian economics, Modern Monetary Theory (MMT), expansionary fiscal contraction, unconventional monetary policy, the Phillips curve, and hysteresis. The conclusion is that Keynesian economics is alive and well, and that there has been a degree of convergence between heterodox and mainstream economics. |
| Keywords: | Macroeconomics, Keynesian economics, Keynes |
| JEL: | E60 E10 E31 B22 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp512&r=all |
| By: | Garriga, Carlos (Federal Reserve Bank of St. Louis); Hedlund, Aaron (University of Missouri ; Federal Reserve Bank of St. Louis) |
| Abstract: | The global financial crisis of the past decade has shaken the research and policy worlds out of their belief that housing markets are mostly benign and immaterial for understanding economic cycles. Instead, a growing consensus recognizes the central role that housing plays in shaping economic activity, particularly during large boom and bust episodes. This article discusses the latest research regarding the causes, consequences, and policy implications of housing crises with a broad focus that includes empirical and structural analysis, insights from the 2000's experience in the United States, and perspectives from around the globe. Even with the significant degree of heterogeneity in legal environments, institutions, and economic fundamentals over time and across countries, several common themes emerge to guide current and future thinking in this area. |
| Keywords: | housing; mortgages; debt; crisis; foreclosure |
| JEL: | D31 D83 E21 E22 G11 G12 G21 |
| Date: | 2019–04–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-033&r=all |
| By: | Mirko Abbritti (University of Navarra); Asier Aguilera-Bravo (Public University of Navarra and INARBE); TommasoTrani (University of Navarra) |
| Abstract: | A growing empirical literature documents the importance of long-term relationships and bargaining for price rigidity and firms' dynamics. This paper introduces long-term business-to-business (B2B) relationships and price bargaining into a standard monetary DSGE model. The model is based on two assumptions: first, both wholesale and retail producers need to spend resources to form new business relationships. Second, once a B2B relationship is formed, the price is set in a bilateral bargaining between firms. The model provides a rigorous framework to study the effect of long-term business relationships and bargaining on monetary policy and business cycle dynamics. It shows that, for a standard calibration of the product market, these relationships reduce both the allocative role of intermediate prices and the real effects of monetary policy shocks. We also find that the model does a good job in replicating the second moments and cross-correlations of the data, and that it improves over the benchmark New Keynesian model in explaining some of them. |
| Keywords: | Monetary Policy, PriceBargaining, ProductMarketSearch, B2B |
| JEL: | E52 E3 D4 L11 |
| Date: | 2019–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:una:unccee:wp0219&r=all |
| By: | Zenios, Stavros A. (University of Cyprus); Consiglio, Andrea (University of Palermo); Athanasopoulou, Marialena (European Stability Mechanism); Moshammer, Edmund (European Stability Mechanism); Gavilan, Angel (Banco de España); Erce, Aitor (Banco de España) |
| Abstract: | We develop a model of debt sustainability analysis with optimal financing decisions in the presence of macroeconomic, financial and fiscal uncertainty. We define a coherent measure of refinancing risk, and trade off the risks of debt stock and flow dynamics, subject to debt sustainability constraints and endogenous risk and term premia. We optimize both static and dynamic financing strategies, compare them with several simple rules and consol financing to demonstrate economically significant effects of optimal financing, and show that the stock-flow tradeoff can be critical for sustainability. We quantify the minimum refinancing risk and the maximum rate of debt reduction that a sovereign can achieve given its economic fundamentals, and extend the model to identify optimal timing for debt flow adjustments that allow the sovereign to go beyond these limits. We put the model to the data on three real-world cases: a representative euro zone crisis country, a low-debt country (Netherlands) and a high-debt country (Italy). These applications illustrate the use of the model in informing diverse policy decisions on sustainable public finance. The model is part of the European Stability Mechanism toolkit to assess debt sustainability and repayment capacity of member states in the context of financial assistance. |
| Keywords: | sovereign debt; sustainability; debt financing; optimization; stochastic programming; scenario analysis; conditional Value-at-Risk; risk measures |
| JEL: | C61 C63 D61 E3 E47 E62 F34 G38 H63 |
| Date: | 2019–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:367&r=all |
| By: | Gortz, Christoph (University of Birmingham); Gunn, Christopher (Carleton University); Lubik, Thomas A. (Federal Reserve Bank of Richmond) |
| Abstract: | We study the effects of news shocks on inventory accumulation in a structural VAR framework. We establish that inventories react strongly and positively to news about future increases in total factor productivity. Theory suggests that the transmission channel of news shocks to inventories works through movements in marginal costs, through movements in sales, or through interest rates. We provide evidence that changes in external and internal rates of return are central to the transmission for such news shocks. We do not find evidence of a strong substitution effect that shifts production from the present into the future. |
| Keywords: | Structural VAR; News Shocks; Inventories |
| JEL: | C32 E22 E32 G31 |
| Date: | 2019–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:19-18&r=all |
| By: | Carriero, Andrea (Queen Mary, University of London); Clark, Todd E. (Federal Reserve Bank of Cleveland); Marcellino, Massimiliano (Bocconi University, IGIER, and CEPR) |
| Abstract: | This paper uses a large vector autoregression to measure international macroeconomic uncertainty and its effects on major economies. We provide evidence of significant commonality in macroeconomic volatility, with one common factor driving strong comovement across economies and variables. We measure uncertainty and its effects with a large model in which the error volatilities feature a factor structure containing time-varying global components and idiosyncratic components. Global uncertainty contemporaneously affects both the levels and volatilities of the included variables. Our new estimates of international macroeconomic uncertainty indicate that surprise increases in uncertainty reduce output and stock prices, adversely affect labor market conditions, and in some economies lead to an easing of monetary policy. |
| Keywords: | Uncertainty; Endogeneity; Identifcation; Stochastic Volatility; Bayesian Methods; |
| JEL: | C11 C32 D81 E32 |
| Date: | 2019–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:180301&r=all |
| By: | Aliprantis, Dionissi (Federal Reserve Bank of Cleveland); Carroll, Daniel R. (Federal Reserve Bank of Cleveland); Young, Eric R. (Federal Reserve Bank of Cleveland) |
| Abstract: | We reconcile the large and persistent racial wealth gap with the smaller racial earnings gap, using a general equilibrium heterogeneous-agents model that matches racial differences in earnings, wealth, bequests, and returns to savings. Given initial racial wealth inequality in 1962, our model attributes the slow convergence of the racial wealth gap primarily to earnings, with much smaller roles for bequests or returns to savings. Cross-sectional regressions of wealth on earnings using simulated data produce the same racial gap documented in the literature. One-time wealth transfers have only transitory effects unless they address the racial earnings gap. |
| Keywords: | Racial Inequality; Wealth Dynamics; |
| JEL: | D31 D58 E21 E24 J7 |
| Date: | 2019–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:191800&r=all |
| By: | Oliver de Groot; Ceyhun Bora Durdu; Enrique G. Mendoza |
| Abstract: | Global and local methods are widely used in international macroeconomics to analyze incomplete-markets models. We study solutions for an endowment economy, an RBC model and a Sudden Stops model with an occasionally binding credit constraint. First-order, second-order, risky steady state (RSS), and DynareOBC solutions are compared v. fixed-point-iteration global solutions in the time and frequency domains. The solutions differ in key respects, including measures of precautionary savings, cyclical moments, impulse response functions, financial premia and macro responses to credit constraints, and periodograms of consumption, foreign assets and net exports. The global method is easy to implement and fast albeit slower than local methods, except DynareOBC which is of comparable speed. These findings favor global methods except when prevented by the curse of dimensionality and urge caution when using local methods. Of the latter, first-order solutions are preferable because results are very similar to second-order and RSS methods. |
| JEL: | E44 E47 F41 F44 F47 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26426&r=all |
| By: | Pham, Thai-Binh; Sala, Hector |
| Abstract: | This paper studies the macroeconomic effects of oil price shocks in Vietnam. It expands Kilian’s (2009) framework to simultaneously consider risk-premium shocks and comprehensively assess their consequences on international competitiveness and the State Bank management of the monetary policy. Methodologically, this implies dealing with an over-identified structural vector autoregression (SVAR) model. Data wise, the analysis is performed on a unique dataset with variables defined at a monthly frequency running from 1998:01 to 2018:12. Demand-side, global-, and specific-oil price shocks determine inflation and international competitiveness, and play an essential role in explaining the long-run variations of several Vietnamese macroeconomic indicators (mainly the trade balance, three-month interest rates, and the inflation rate). Vietnam’s Dong pegging to the US Dollar results in a stronger impact of these shocks when real exchange rates and the rate of exports are modelled, than when real effective exchange rates and the trade balance are modelled. In the latter case, shock absorption is quicker given the multilateral trade context in which no single pegging holds. In association to the strong tie between Vietnam’s Dong and the U.S. dollar, we also uncover remarkable effects of risk-premium (or U.S. Federal Fund rate) shocks. Supply-side oil price shocks have little impact on inflation and international competitiveness but condition the monetary policy. Neglecting such influence in the past may have resulted in an excessively conservative monetary policy. |
| Keywords: | Oil price shocks; risk-premium shocks; SVAR; international trade; Vietnam |
| JEL: | F41 F62 Q41 Q43 |
| Date: | 2019–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96873&r=all |
| By: | Macera, Manuel (Universidad Torcuato Di Tella); Marcet, Albert (Univeritat Autonoma de Barcelona); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis) |
| Abstract: | Following the sovereign debt crisis of 2012, some southern European countries have debated proposals to leave the Euro. We evaluate this policy change in a standard monetary model with seigniorage financing of the deficit. The main novel feature is that we depart from rational expectations while maintaining full rationality of agents in a sense made very precise. Our first contribution is to show that small departures from rational expectations imply that inflation upon exit can be orders of magnitude higher than under rational expectations. Our second contribution is to provide a framework for policy analysis in models without rational expectations. |
| Keywords: | Internal rationality; Inflation; Seigniorage |
| JEL: | E41 E52 E63 |
| Date: | 2019–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:760&r=all |
| By: | Dario Caldara; Matteo Iacoviello; Patrick Molligo; Andrea Prestipino; Andrea Raffo |
| Abstract: | We study the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. We construct three measures of TPU based on newspaper coverage, firms' earnings conference calls, and aggregate data on tari rates. We document that increases in TPU reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms' export participation decisions. In the model as in the data, news and increased uncertainty about higher future tariffs reduce investment and activity. |
| Keywords: | Trade Policy Uncertainty ; Textual Analysis ; Tariffs ; Investment ; Uncertainty Shocks |
| JEL: | C1 D22 D80 E12 E32 F13 H32 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1256&r=all |
| By: | Amat Adarov (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Using dynamic factor models and state-space techniques we quantify financial cycles for twenty European countries over the period 1960Q1–2015Q4 capturing imbalances across credit, housing, bond and equity markets. The paper documents the existence of slow-moving and persistent financial cycles for all countries in the sample, many of which also exhibit high cross-country synchronicity. Spillover analysis points at the significant role the global financial cycle and a common latent region-specific factor, the European financial cycle, play in shaping national financial market dynamics. Estimations using Bayesian panel VAR models to assess interactions between external and internal macroeconomic imbalances suggest that financial cycles are an important driver of business cycles and public debt dynamics, with much stronger shock transmission observed in the euro area and systemic European economies. Disclaimer Research for this paper was financed by the Anniversary Fund of the Oesterreichische Nationalbank (Project No. 17044). Support provided by Oesterreichische Nationalbank for this research is gratefully acknowledged. |
| Keywords: | financial cycles, macroeconomic imbalances, financial stability, business cycles, financial spillovers, panel VAR, Bayesian VAR |
| JEL: | E44 F32 G15 F4 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:166&r=all |
| By: | Daniel Baksa (Institute for Capacity Development, International Monetary Fund and Central European University); Istvan Konya (Institute of Economics, Centre for Economic and Regional Studies, and University of Pécs and Central European University) |
| Abstract: | We study the role of productivity convergence and financial conditions in the recent growth experience of Hungary. We build a stochastic, small-open economy growth model with productivity convergence, capital accumulation and external borrowing. Using empirically identified processes for productivity and the external interest premium, we simulate the effects of two unexpected, permanent changes on Hungarian growth. The first change is the sharp productivity slowdown starting in 2006, and the second is the tightening of external financial conditions starting in 2009. Simulating our model, we show that the empirically identified productivity and interest premium processes - along with the two unexpected permanent changes and regular i.i.d. productivity and interest premium innovations – capture the main medium-run dynamics of the Hungarian economy both before and after the global financial crisis. Running counterfactuals, we also find that the observed slowdown in GDP per capita growth was mostly driven by productivity, while the tightening of external financing conditions is important to understand investment behavior and the net foreign asset position. |
| Keywords: | economic growth, convergence, productivity, interest premium, Hungary |
| JEL: | E13 E22 F43 O47 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1916&r=all |
| By: | Santiago Marín-Ardila |
| Abstract: | In this paper we assess the asymmetric responses of the inflation rate to nominal exchange rate shocks in Colombia. To this end, we estimate a Threshold VAR (TVAR) along with a Generalized Impulse Response Function (GIRF) framework. The empirical evidence illustrates the existence of two regimes (low and high nominal exchange rate levels) and that nominal exchange rate shocks have different effects on the inflation rate depending from the regime which the shock departs. ****** En el presente artículo se estudian las respuestas asimétricas de la inflación ante choques en la tasa de cambio nominal en Colombia. Para este fin, se estima un modelo VAR por Umbrales (TVAR) junto con un marco de Funciones de Impulso Respuesta Generalizadas (GIRF). La evidencia empírica sugiere la existencia de dos regímenes (niveles alto y bajo de la tasa de cambio nominal) y la existencia de respuestas distintas de la inflación a choques en la tasa de cambio nominal, dependiendo del régimen de donde parte el choque. |
| Keywords: | asymmetries, pass-through, exchange rate, inflation, TVAR, nonlinearities, Colombia |
| JEL: | C32 E31 E40 |
| Date: | 2019–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000538:017572&r=all |
| By: | Ai, Hengjie; Li, Jun E.; Li, Kai; Schlag, Christian |
| Abstract: | A common prediction of macroeconomic models of credit market frictions is that the tightness of financial constraints is countercyclical. As a result, theory implies a negative collateralizability premium; that is, capital that can be used as collateral to relax financial constraints provides insurance against aggregate shocks and commands a lower risk compensation compared with non-collateralizable assets. We show that a longshort portfolio constructed using a novel measure of asset collateralizability generates an average excess return of around 8% per year. We develop a general equilibrium model with heterogeneous firms and financial constraints to quantitatively account for the collateralizability premium. |
| Keywords: | Cross-Section of Returns,Financial Frictions,Collateral Constraint |
| JEL: | E2 E3 G12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:264&r=all |
| By: | Stavins, Joanna (Federal Reserve Bank of Boston) |
| Abstract: | We measure consumers’ readiness to face emergency expenses. Based on data from a representative survey of US consumers, we find that financial readiness varies widely across consumers, with lowest-income, least-educated, unemployed, and black consumers most likely to have $0 saved for emergency expenses. For these consumers, even a temporary financial shock, either an unexpected negative income shock (such as a layoff or a short-term government shutdown) or an unexpected expenditure (such as a medical expense or a car repair), could have severe financial consequences. The literature likely underestimates the consequences, because consumers who are not financially prepared to cover unexpected expenses are more likely to borrow on their credit cards, adding to their existing debt. Thus the cost of relying on credit cards is likely very high for consumers who are already financially vulnerable. We use panel data to examine whether consumers who experienced a substantial drop in income from one year to the next, like one resulting from a layoff or a government shutdown, increased their credit card borrowing. We do not find evidence that a negative income shock raises consumers’ likelihood of revolving on credit cards or increasing the amount borrowed. |
| Keywords: | emergency savings; credit card debt; unexpected expenses |
| JEL: | D12 D14 E21 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:19-7&r=all |
| By: | Idriss Fontaine (Universite de La Reunion); Ismael Galvez-Iniesta (Universidad Carlos III de Madrid); Pedro Gomes (Birkbeck, University of London; Centre for Macroeconomics (CFM)); Diego Vila-Martin (University of Amsterdam) |
| Abstract: | For the period between 2003 and 2018, we document a number of facts about worker gross flows in France, the United Kingdom, Spain and the United States, focussing on the role of the public sector. Using the French, Spanish and UK Labour Force Survey and the US Current Population Survey data, we examine the size and cyclicality of the flows and transition probabilities between private and public employment, unemployment and inactivity. We examine the stocks and flows by gender, age and education. We decompose contributions of private and public job-finding and job-separation rates to fluctuations in the unemployment rate. Public- sector employment contributes 20 percent to fluctuations in the unemployment rate in the UK, 15 percent in France and 10 percent in Spain and the US. Private-sector workers would forgo 0.5 to 2.9 percent of their wage to have the same job security as public-sector workers. |
| Keywords: | Worker gross flows, Job-finding rate, Job-separation rate, Public sector, Public-sector employment |
| JEL: | E24 E32 J21 J45 J60 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1919&r=all |
| By: | Jia, Chengcheng (Federal Reserve Bank of Cleveland) |
| Abstract: | I study the optimal type of forward guidance in a flexible-price economy in which both the private sector and the central bank are subject to imperfect information about the aggregate state of the economy. In this case, forward guidance changes the private sector’s expectations about both future monetary policy and the state of the economy. I study two types of forward guidance. The first type is instrument based, in which case the central bank commits to a value of the policy instrument. The second type is state contingent, in which case the central bank reveals its imperfect information and commits to a policy response rule. The key message is that forward guidance allows the central bank to reduce ex-ante price fluctuations by making the optimal trade-off between price deviations after the actual shock and after the noise shock. However, this benefit comes with a cost under the instrument-based forward guidance; that is, since firms perfectly know the change in monetary policy and prices are fully flexible, the real output level becomes independent of monetary policy. Consequently, while state-contingent forward guidance guarantees ex-ante welfare improvement, instrument-based forward guidance improves ex-ante welfare only if the central bank’s information is sufficiently precise. |
| JEL: | D82 D83 E52 E58 |
| Date: | 2019–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:192200&r=all |
| By: | Paola Morales-Acevedo (Monetary and International Investment Office of the Central Bank of Colombia) |
| Abstract: | This paper analyses the impact of foreign monetary policy — from a broad range of countries — on the foreign indebtedness of Colombian banks and corporations, and evaluates if capital controls can help to mitigate these spillover effects. The paper uses two unique loan-level datasets on cross-border lending that cover all the foreign loans granted by foreign-located financial institutions to domestically located financial and non-financial companies, respectively. The results support the existence of spillover effects of foreign monetary policy over the characteristics of cross-border loans. In particular, periods of foreign monetary policy easing (tightening) are associated with: i) increases (decreases) on the cross-border lending to banks, and decreases (increases) on the cross-border lending to corporations; and ii) decreases (increases) on the loan interest rates to banks and corporations. The paper also finds that capital controls play an important role in mitigating these spillover effects, however, their effectiveness depends on the stance of both foreign and domestic monetary policy. |
| Keywords: | cross-border lending, monetary policy, capital control |
| JEL: | E44 F34 G01 |
| Date: | 2019–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp17-2019&r=all |
| By: | Heise, Sebastian (Federal Reserve Bank of New York) |
| Abstract: | Economists have long suspected that firm-to-firm relationships might lower the responsiveness of prices to shocks due to the use of fixed-price contracts. Using transaction-level U.S. import data, I show that the pass-through of exchange rate shocks in fact rises as a relationship grows older. Based on novel stylized facts about a relationship’s life cycle, I develop a model of relationship dynamics in which a buyer-seller pair accumulates relationship capital to lower production costs under limited commitment. The structurally estimated model generates countercyclical markups and countercyclical pass-through of shocks through variation in the economy’s rate of relationship creation, which falls in recessions. |
| Keywords: | prices; exchange rate; supply chain; trade relationships |
| JEL: | E30 E32 F14 L14 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:896&r=all |
| By: | Babina, Tania (Columbia University); Ma, Wenting (University of Massachusetts Amherst); Moser, Christian (Federal Reserve Bank of Minneapolis); Ouimet, Paige P. (University of North Carolina at Chapel Hill); Zarutskie, Rebecca (Board of Governors of the Federal Reserve System) |
| 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: | D22 E24 J30 J31 M13 |
| Date: | 2019–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:0021&r=all |
| By: | Benjamin Born; Francesco D'Ascanio; Gernot Müller; Johannes Pfeifer |
| Abstract: | Under fixed exchange rates, fiscal policy is an effective tool. According to classical views because it impacts the real exchange rate, according to Keynesian views because it impacts output. Both views have merit because the effects of government spending are asymmetric. A spending cut lowers output but does not alter the real exchange rate. A spending increase appreciates the exchange rate but does not alter output unless there is economic slack. We establish these results in a small open economy model with downward nominal wage rigidity and provide empirical evidence on the basis of quarterly time-series data for 38 countries. |
| Keywords: | downward nominal wage rigidity, government spending shocks, exchange rate peg, real exchange rate, output, non-linear effects, asymmetric adjustment |
| JEL: | E62 F41 F44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7922&r=all |
| By: | Auer, Raphael (Bank of International Settlements) |
| Abstract: | The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, i.e., a regulatory framework that provides for compliance in tokenized markets to be automatically monitored by reading the market’s ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralized market is modelled that replaces today’s intermediary-based verification of legal data with blockchain-enabled data credibility based on economic consensus. The key results set out the conditions under which the market’s economic consensus would be strong enough to guarantee that transactions are economically final, so that supervisors can trust the distributed ledger’s data. The paper concludes with a discussion of the legislative and operational requirements that would promote low-cost supervision and a level playing field for small and large firms. |
| Keywords: | tokenisation; stablecoins; asset-based tokens; cryptoassets; cryptocurrencies; regtech; suptech; regulation; supervision; Basel III; proportionality; blockchain; distributed ledger technology; central bank digital currencies; proof-of-work; proof-of-stake; permissioned DLT; economic consensus; economic finality; fintech; compliance; auditing; accounting; privacy; digitalisation; finance; banking |
| JEL: | D20 D40 E42 E51 F31 G12 G18 G28 G32 G38 K22 L10 L50 M40 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:371&r=all |
| By: | Tuzemen, Didem (Federal Reserve Bank of Kansas City) |
| Abstract: | I study the effect of disappearing routine occupations on the decline in the labor force participation rate of prime-age individuals since the 1990s. I use multiple data sources and empirical models to study this relationship. First, I exploit state-level variation and show that the long-term trends of declining routine employment and prime-age labor force participation are highly correlated. Second, I narrow the geographic unit to local labor markets and quantify the causal effect of declining routine employment on the labor market outcomes of prime-age individuals. My results imply that the decline in routine employment was an important contributor to the declines in the labor force participation rate and employment-to-population ratio since the 1990s, especially for prime-age individuals without a bachelor's degree. Additionally, I show that the decline in routine employment was not limited to prime-age men in the manufacturing industries, but was observed across most major industries and affected women as well. More strikingly, disappearing routine employment had a larger negative effect on the labor force participation rate of prime-age women without a bachelor's degree than their male counterparts. |
| Keywords: | Job Polarization; Labor Force Participation; Prime-age Individuals; Skills |
| JEL: | E24 E32 J21 J24 J62 |
| Date: | 2019–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp19-03&r=all |
| By: | Javier Bianchi; Pablo Ottonello; Ignacio Presno |
| Abstract: | The excess procyclicality of fiscal policy is commonly viewed as a central malaise in emerging economies. We document that procyclicality is more pervasive in countries with higher sovereign risk and provide a model of optimal fiscal policy with nominal rigidities and endogenous sovereign default that can account for this empirical pattern. Financing a fiscal stimulus is costly for risky countries and can render countercyclical policies undesirable, even in the presence of large Keynesian stabilization gains. We also show that imposing austerity can backfire by exacerbating the exposure to default, but a well-designed "fiscal forward guidance" can help reduce the excess procyclicality. |
| Keywords: | Fiscal Stabilization Policy ; Sovereign Default ; Procyclicality |
| JEL: | E62 F34 F41 F44 H50 |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1257&r=all |
| By: | Bianchi, Javier (Federal Reserve Bank of Minneapolis); Ottonello, Pablo (University of Michigan); Presno, Ignacio (Federal Reserve Board of Governors) |
| Abstract: | The excess procyclicality of fiscal policy is commonly viewed as a central malaise in emerging economies. We document that procyclicality is more pervasive in countries with higher sovereign risk and provide a model of optimal fiscal policy with nominal rigidities and endogenous sovereign default that can account for this empirical pattern. Financing a fiscal stimulus is costly for risky countries and can render countercyclical policies undesirable, even in the presence of large Keynesian stabilization gains. We also show that imposing austerity can backfire by exacerbating the exposure to default, but a well-designed "fiscal forward guidance" can help reduce the excess procyclicality. |
| Keywords: | Fiscal stabilization policy; Sovereign default; Procyclicality |
| JEL: | E62 F34 F41 F44 H50 |
| Date: | 2019–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:762&r=all |
| By: | Tweneboah Senzu, Emmanuel |
| Abstract: | The desire of the modern economies is to be well structured and planned to innovatively attract foreign direct investment, which is the prime interest of governance of developing economies. This underpins the choice of the conference theme, “Building a resilient African economy through innovative financing, trade, and Investment for sustainable development of the continent”, with the effort of this paper is to project a skeletal ex-post situation of Ghana’s financial market which is synonymous to most quality performing financial market in developing countries on the continent of Africa with subjective recommendations for aspired progressive direction. |
| Keywords: | Banking & Finance, Financial Sector, Macroeconomics, Monetary Policy, Central Bank, Foreign Direct investment |
| JEL: | E22 E26 E5 G21 G28 |
| Date: | 2019–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96783&r=all |
| By: | Walter Engert; Ben Fung |
| Abstract: | Cashless or tellerless bank branches have proliferated in several countries in recent years. In a cashless bank branch, teller or counter services such as cash withdrawals, deposits and cheque-cashing are not available. These services are instead provided via automatic teller machines. This note discusses the development of tellerless bank branches in Canada and analyzes the potential implications for cash demand. |
| Keywords: | Bank notes; Digital Currencies and Fintech; Financial services |
| JEL: | E41 E42 E51 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocsan:19-29&r=all |
| By: | Fallick, Bruce C. (Federal Reserve Bank of Cleveland); Krolikowski, Pawel (Federal Reserve Bank of Cleveland) |
| Abstract: | We examine persistence in employment-to-population ratios in excess of that implied by persistence in aggregate labor market conditions, among less-educated individuals using state-level data for the United States. Dynamic panel regressions and local projections indicate a moderate degree of excess persistence, which dissipates within three years. We find no significant asymmetry between the excess persistence of high vs. low employment rates. The cumulative effect of excess persistence in the business cycle surrounding the 2001 recession was mildly positive, while the effect in the cycle surrounding the 2008-09 recession was decidedly negative. Simulations suggest that the lasting employment benefits of temporarily running a “high-pressure” economy are small. |
| Keywords: | persistence; labor market tightness; unemployment; employment; |
| JEL: | E24 J21 J24 |
| Date: | 2019–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:180101&r=all |
| By: | Georgiadis, Georgios (European Central Bank); Schumann, Ben (European Central Bank) |
| 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 coordination. 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 U.S. dollar multilaterally decline with an economy's export-import U.S. 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 U.S. 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 U.S. dollar appreciation correlate negatively with recipient economies' export-import U.S. dollar invoicing share differentials. We document that these findings are robust to considering U.S. demand, U.S. monetary policy and exogenous exchange rate shocks as a trigger of U.S. dollar appreciation, as well as to accounting for the role of commodity trade in U.S. dollar invoicing. |
| Keywords: | Dominant-currency pricing; U.S. shocks; spillovers |
| JEL: | C50 E52 F42 |
| Date: | 2019–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:368&r=all |
| By: | Harashima, Taiji |
| Abstract: | The rate of time preference (RTP) has been observed to be negatively correlated with incomes, but the mechanism behind this correlation is not yet sufficiently understood. Here, I examine it on the basis of fluid intelligence in an economy in which households behave according to the maximum degree of comfortability. I show that heterogeneity in fluid intelligences among households causes heterogeneous RTPs and incomes at the same time. This means that the negative correlation between RTP and incomes is spurious, and there is no direct causality between them. They only appear to be correlated because they are bridged by fluid intelligences. |
| Keywords: | The rate of time preference; Maximum degree of comfortability; Fluid intelligence |
| JEL: | D11 D14 D91 E21 E22 |
| Date: | 2019–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96756&r=all |
| By: | Carlos Carriga (Federal Reserve Bank of St. Louis); Finn E. Kydland (University of California – Santa Barbara; NBER); Roman Sustek (Centre for Macroeconomics (CFM)) |
| Abstract: | We propose a tractable framework for monetary policy analysis in which both short - and long-term debt affect equilibrium outcomes. This objective is motivated by observations from two literatures suggesting that monetary policy contains a dimension affecting expected future interest rates and thus the costs of long-term financing. In New-Keynesian models, however, long-term loans are redundant assets. We use the model to address three questions: what are the effects of statement vs. action policy shocks; how important are standard New-Keynesian vs. cash flow effects in their transmission; and what is the interaction between these two effects? |
| Keywords: | Mortgages, Cash-flow effects, Sticky prices, Monetary policy transmission, Monetary policy communication |
| JEL: | E52 G21 R21 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1920&r=all |
| By: | Carroll, Daniel R. (Federal Reserve Bank of Cleveland); Dolmas, James (Federal Reserve Bank of Dallas); Young, Eric R. (Federal Reserve Bank of Cleveland) |
| Abstract: | We study the political determination of flat tax systems using a workhorse macroeconomic model of inequality. There is significant variation in preferred tax policy across the wealth and income distribution. The majority voting outcome features (i) zero labor income taxation, (ii) simultaneous use of capital income and consumption taxation, and (iii) essentially zero transfers. This policy is supported by a coalition of low- and middle-wealth households. Zero labor income taxation is supported by households with below average wealth, while the middle-wealth households prefer to keep the transfer (and thus other tax rates) low. We also show that the outcome is sensitive to assumptions about the voting power of household groups, the degree of wealth and income mobility, and the forward-looking nature of votes. |
| Keywords: | Political Economy; Essential Set; Voting; Inequality; Incomplete Markets; |
| JEL: | D52 D72 E62 |
| Date: | 2019–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:144202&r=all |
| By: | Mikhail Dmitriev (Department of Economics, Florida State University); Jonathan Hoddenbagh (Department of Economics, Johns Hopkins University) |
| Abstract: | We establish the share of exports in production as a sufficient statistic for optimal noncooperative monetary policy. Under financial autarky, markups positively co-move with the export share. For complete markets, markups should be procyclical if the export share is procyclical. When central banks cooperate, markups are constant under complete markets, and countercyclical under financial autarky. |
| Keywords: | Open economy macroeconomics, Optimal monetary policy. Price stability |
| JEL: | E50 F41 F42 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:fsu:wpaper:wp2019_10_01&r=all |
| By: | Ivan Baumann Fonay; Luciano Cohan (Secretaría de Política Económica, Ministerio de Hacienda) |
| Abstract: | El documento descompone las fuentes de crecimiento económico en Argentina y provee estimaciones de la Productividad Total de los Factores (PTF), el PIB potencial y la brecha del producto para el período 1993-2017. Para realizar el ejercicio de contabilidad de crecimiento se utiliza el enfoque de la función de producción agregada. Se proveen estimaciones de la PTF observada y potencial para luego computar el PIB potencial y la brecha del producto. Se presenta un análisis de sensibilidad y robustez de los resultados y se computa la tasa de crecimiento económico sostenible en el largo plazo. Se concluye que uno de los desafíos que afronta Argentina es profundizar el patrón de crecimiento de tipo intensivo para asegurar tasas de crecimiento sostenibles en el largo plazo. |
| Keywords: | Growth accounting, TFP, Potencial GDP, Output gap, Argentina |
| JEL: | O4 O11 O47 E24 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:abt:wpaper:0001&r=all |
| By: | Groß, Jonas; Herz, Bernhard; Schiller, Jonathan |
| Abstract: | The announcement of the Libra Association to issue a private global currency has triggered a heated debate about the concomitantadvantages and risks. Proponents expectLibra to unfetter money from its "governmental chains" and liberalize and cheapen monetary transactions around the globe. Opponents argue that a private currency imposes unforeseeable risks forboth individualsand the whole financial system. Furthermore, Libra could hamper monetary policies of national central banks. This paper contributes to the debate in two ways. First, we offer a comprehensive overview of the concept of Libra and its possible benefits and downsides to analyze its market potential. Second, we discuss potential implications that a private currency as Libra poses for monetary policy and financial regulation. |
| Keywords: | Libra,Cryptocurrency,Monetary Policy,Currency Regime |
| JEL: | E42 E52 G28 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:205241&r=all |
| By: | Fulford, Scott L. (Consumer Financial Protection Bureau); Stavins, Joanna (Federal Reserve Bank of Boston) |
| Abstract: | Buying a house changes a household’s balance sheet by simultaneously reducing liquidity and introducing mortgage payments, which may leave the household more exposed to other shocks. We find that this change affects credit card use in two ways: A debt effect increases credit card spending, while a credit effect leads to higher credit limits. In the short run, a new mortgage acquisition has a robust and statistically significant positive effect on credit card utilization — the fraction of a consumer’s credit card limit that is used — of approximately 11 percentage points. Before the 2008 financial crisis, the credit effect exceeded the debt effect in the long run, pushing down long-term utilization. In our sample period after the financial crisis, the debt effect dominated in the long run, and credit card utilization rates rose upon the acquisition of a new mortgage, consistent with larger down payments leaving households more constrained. |
| Keywords: | credit cards; mortgage; credit card utilization; debt |
| JEL: | D14 E21 |
| Date: | 2019–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:19-8&r=all |
| By: | Bill Martin |
| Abstract: | Building on the methodology explained in Martin (2009), this paper sets itself the task of backcasting the UK national sectoral accounts before 1987, the date prior to which fully comprehensive data are not provided by the Office for National Statistics. Backcast data cover the private, government and overseas sectors. Innovations compared with the earlier paper include the extension of the dataset to begin in 1946 rather than 1948, and, more importantly, an attempt to backcast financial balances for the household and corporate sectors. This attempt involves the backcasting of pension saving before 1963 and of major components of the household and corporate capital account before 1987. The household and corporate sector data are likely subject to greater measurement error than estimates for more aggregate sector balances, as shown in Martin (2009) and provisionally upheld in this paper by simple tests of stability across different data vintages. Subject to further verification and improvements, now in prospect, in official historic data, the derived postwar sectoral estimates may nevertheless enable more robust testing of a variety of long-run macroeconomic hypotheses. |
| Keywords: | National accounts, financial balances, macroeconomics, UK |
| JEL: | C82 E01 N1 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp514&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Rexon T. Nting (London, UK); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | Purpose- In this study, we test the so-called ‘Quiet Life Hypothesis’ (QLH) which postulates that banks with market power are less efficient. Design/methodology/approach- We employ instrumental variable Ordinary Least Squares, Fixed Effects, Tobit and Logistic regressions. The empirical evidence is based on a panel of 162 banks consisting of 42 African countries for the period 2001-2011. There is a two-step analytical procedure. First, we estimate Lerner indices and cost efficiency scores. Then, we regress cost efficiency scores on Lerner indices contingent on bank characteristics, market features and the unobserved heterogeneity. Findings- The empirical evidence does not support the QLH because market power is positively associated with cost efficiency. Originality/value- Owing to data availability constraints, this is one of the few studies to test the QLH in African banking. |
| Keywords: | Finance; Savings banks; Competition; Efficiency; Quiet life hypothesis |
| JEL: | E42 E52 E58 G21 G28 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/080&r=all |
| By: | Carroll, Daniel R. (Federal Reserve Bank of Cleveland); Hur, Sewon (Federal Reserve Bank of Cleveland) |
| Abstract: | How are the gains and losses from trade distributed across individuals within a country? First, we document that tradable goods and services constitute a larger fraction of expenditures for low-wealth and low-income households. Second, we build a trade model with nonhomothetic preferences—to generate the documented relationship between tradable expenditure shares, income, and wealth—and uninsurable earnings risk—to generate heterogeneity in income and wealth. Third, we use the calibrated model to quantify the differential welfare gains and losses from trade along the income and wealth distribution. In a numerical exercise, we permanently reduce trade costs so as to generate a rise in import share of GDP commensurate with that seen in the data from 2001 to 2014. We find that households in the lowest wealth decile experience welfare gains over the transition, measured by permanent consumption equivalents, that are 57 percent larger than those in the highest wealth decile. |
| Keywords: | trade gains; inequality; consumption; |
| JEL: | E21 F10 F13 F62 |
| Date: | 2019–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:190602&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Rexon T. Nting (London, UK); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria) |
| Abstract: | Purpose- In this study, we test the so-called ‘Quiet Life Hypothesis’ (QLH) which postulates that banks with market power are less efficient. Design/methodology/approach- We employ instrumental variable Ordinary Least Squares, Fixed Effects, Tobit and Logistic regressions. The empirical evidence is based on a panel of 162 banks consisting of 42 African countries for the period 2001-2011. There is a two-step analytical procedure. First, we estimate Lerner indices and cost efficiency scores. Then, we regress cost efficiency scores on Lerner indices contingent on bank characteristics, market features and the unobserved heterogeneity. Findings- The empirical evidence does not support the QLH because market power is positively associated with cost efficiency. Originality/value- Owing to data availability constraints, this is one of the few studies to test the QLH in African banking. |
| Keywords: | Finance; Savings banks; Competition; Efficiency; Quiet life hypothesis |
| JEL: | E42 E52 E58 G21 G28 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/080&r=all |
| By: | Carlos Garriga; Finn E. Kydland; Roman Šustek |
| Abstract: | We propose a tractable framework for monetary policy analysis in which both short- and long-term debt affect equilibrium outcomes. This objective is motivated by observations from two literatures suggesting that monetary policy contains a dimension affecting expected future interest rates and thus the costs of long-term financing. In New-Keynesian models, however, long-term loans are redundant assets. We use the model to address three questions: what are the effects of statement vs. action policy shocks; how important are standard New-Keynesian vs. cash flow effects in their transmission; and what is the interaction between these two effects? |
| JEL: | E52 G21 R21 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26427&r=all |
| By: | Cazachevici, Alina; Havranek, Tomas; Horvath, Roman |
| Abstract: | Expatriate workers’ remittances represent an important source of financing for low- and middle-income countries. No consensus, however, has yet emerged regarding the effect of remittances on economic growth. In a quantitative survey of 538 estimates reported in 95 studies, we find that approximately 40% of the studies report a positive effect, 40% report no effect, and 20% report a negative effect. Our results indicate publication bias in favor of positive effects. Correcting for the bias using recently developed techniques, we find that the mean effect of remittances on growth is still positive but economically small. Nevertheless, our results uncover noticeable regional differences: remittances are growth-enhancing in Asia but not in Africa. Studies that do not control for alternative sources of external finance, such as foreign aid and foreign direct investment, mismeasure the effect of remittances. Finally, time-series studies and studies ignoring endogeneity issues report systematically larger effects of remittances on growth. |
| Keywords: | remittances; economic growth; meta-analysis; publication bias; Bayesian model averaging |
| JEL: | D22 E58 F63 G21 |
| Date: | 2019–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96823&r=all |
| By: | Cazachevici, Alina; Havranek, Tomas; Horvath, Roman |
| Abstract: | Expatriate workers’ remittances represent an important source of financing for low- and middle-income countries. No consensus, however, has yet emerged regarding the effect of remittances on economic growth. In a quantitative survey of 538 estimates reported in 95 studies, we find that approximately 40% of the studies report a positive effect, 40% report no effect, and 20% report a negative effect. Our results indicate publication bias in favor of positive effects. Correcting for the bias using recently developed techniques, we find that the mean effect of remittances on growth is still positive but economically small. Nevertheless, our results uncover noticeable regional differences: remittances are growth-enhancing in Asia but not in Africa. Studies that do not control for alternative sources of external finance, such as foreign aid and foreign direct investment, mismeasure the effect of remittances. Finally, time-series studies and studies ignoring endogeneity issues report systematically larger effects of remittances on growth. |
| Keywords: | remittances,economic growth,meta-analysis,publication bias,Bayesian model averaging |
| JEL: | D22 E58 G21 F63 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:205812&r=all |
| By: | Daruich, Diego (University of Southern California); Kozlowski, Julian (Federal Reserve Bank of St. Louis) |
| Abstract: | We compile a new database of grocery prices in Argentina, with over 9 million observations per day. We find uniform pricing both within and across regions—i.e., product prices almost do not vary within stores of a chain. Uniform pricing implies that prices would not change with regional conditions or shocks, particularly so if chains operate in several regions. We confirm this hypothesis using employment data. While prices in stores of chains operating almost exclusively in one region do react to changes in regional employment, stores of chains that operate in many regions do not seem to react to local labor market conditions. We study the impact of uniform pricing on estimates of local and aggregate consumption elasticities in a tractable two-region model in which firms have to set the same price in all regions. The estimated model predicts an almost one-third larger elasticity of consumption to a regional than an aggregate income shock because prices adjust more in response to aggregate shocks. This result highlights that some caution may be necessary when using regional shocks to estimate aggregate elasticities, particularly when the relevant prices are set uniformly across regions. |
| Keywords: | Uniform Pricing; Price Dispersion; Regional Economics |
| JEL: | D40 E30 L10 R10 |
| Date: | 2019–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-024&r=all |
| By: | Bricker, Jesse (Board of Governors of the Federal Reserve System); Moore, Kevin B. (Board of Governors of the Federal Reserve System); Thompson, Jeffrey P. (Federal Reserve Bank of Boston) |
| Abstract: | We use data from the Federal Reserve Board’s Survey of Consumer Finances (SCF) to explore how household asset portfolios in the United States evolved between 1989 and 2016. Throughout this period, two key assets — housing and financial market assets — drove the household balance sheet evolution; however, we find a great heterogeneity in the balance sheets that averages and aggregates conceal. We observe that ownership of assets has become more concentrated over time, and we show that nearly all of the time series variation in financial vulnerabilities in family balance sheets is due to middle-income families, who hold most of their assets in housing and are often the most highly leveraged income group in the housing market. Tracking the evolution of wealth over time among birth-year cohorts, we observe the standard life-cycle asset accumulation processes among low-, middle-, and high-income families. |
| Keywords: | portfolio composition; asset inequality; life-cycle savings patterns; financial risk |
| JEL: | D14 D31 E21 E22 G11 |
| Date: | 2019–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:19-9&r=all |
| By: | Fernald, John G. (Federal Reserve Bank of San Francisco); Hsu, Eric (University of California, Berkeley); Spiegel, Mark M. (Federal Reserve Bank of San Francisco) |
| Abstract: | We propose using imports, measured as reported exports of trading partners, as an alternative benchmark to gauge the accuracy of alternative Chinese indicators (including GDP) of fluctuations in economic activity. Externally-reported imports are likely to be relatively well measured, as well as free from domestic manipulation. Using principal components, we derive activity indices from a wide range of indicators and examine their fit to (trading-partner reported) imports. We choose a preferred index of eight non-GDP indicators (which we call the China Cyclical Activity Tracker, or C-CAT). Comparison with that index and others indicate that Chinese statistics have broadly become more reliable in measuring cyclical fluctuations over time. However, GDP adds little information relative to combinations of other indicators. Moreover, since 2013, Chinese GDP growth has shown little volatility around a gradually slowing trend. Other measures, including the C-CAT and imports, do not show this reduction in volatility. Since 2017, the C-CAT slowed from well above trend to close to trend. As of mid- 2019, it was giving the same cyclical signal as GDP. |
| JEL: | C53 C82 E20 F17 |
| Date: | 2019–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2019-19&r=all |
| By: | Stephen T. Onifade (Selçuk University Konya,Turkey); Ahmet Ay (Selçuk University Konya, Turkey); Simplice A. Asongu (Yaoundé, Cameroon); Festus V. Bekun (Istanbul Gelisim University, Istanbul, Turkey) |
| Abstract: | The recent exacerbation of unemployment crisis in Nigeria stands to be a serious threat to both socio-economic stability and progress of the country just as the report from the nation’s bureau of statistics shows that at least over 8.5 million people had no gainful employment at all as at the last quarter of the year 2017. It is on the above premise, that the present study explores the link between trade and unemployment for the case of Nigeria with the intention of exploring how the unemployment crisis has been impacted within the dynamics of the country’s trade performance. The empirical evidence shows that the nation’s terms of trade were insignificant to unemployment rate while trade openness and domestic investment, on the other hand, have significant opposing impacts on unemployment in Nigeria over the period of the study. Further breakdowns from the empirical analysis also revealed that the Philips curves proposition is valid within the Nigerian economic context while the evidences for the validity of Okun’s law only exist in the short-run scenario. Based on the empirical results, we recommend that concerted effort should be geared toward stimulating domestic investment by providing adequate financial and infrastructural facilities that will promote ease of doing business while utmost precautions are taken to ensure that unemployment crisis is not exacerbated when combating inflation in the economy in the wake of dynamic trade relations. |
| Keywords: | Nigeria; Unemployment; Trade; Phillips Curves; Okun’s law |
| JEL: | E23 F21 F30 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:19/079&r=all |
| By: | Oliver Bachmann; Klaus Gründler; Niklas Potrafke; Ruben Seiberlich |
| Abstract: | We examine partisan bias in inflation expectations. Our dataset includes inflation expectations of the New York Fed’s Survey of Consumer Expectations over the period June 2013 to June 2018. The results show that inflation expectations were 0.46 percentage points higher in Republican-dominated than in Democratic-dominated US states when Barack Obama was US president. Compared to inflation expectations in Democratic-dominated states, inflation expectations in Republican-dominated states declined by 0.73 percentage points when Donald Trump became president. We employ the Blinder-Oaxaca decomposition method to disentangle the extent to which political ideology and other individual characteristics predict inflation expectations: around 25% of the total difference between inflation expectations in Democratic-dominated versus Republican-dominated states is based on how partisans respond to changes in the White House’s occupant (partisan bias). The results also corroborate the belief that voters’ misperceptions of economic conditions decline when the president belongs to the party that voters support. |
| Keywords: | inflation expectation, partisan bias, political ideology, voters’ perceptions, Blinder-Oaxaca, US president |
| JEL: | C13 D72 E31 P44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7904&r=all |
| By: | Jarmila Botev; Balázs Égert; Zuzana Smidova; David Turner |
| Abstract: | This paper calculates new measures of human capital. Contrary to the existing literature, they are based on realistic rates of return to education, which are allowed to vary substantially across countries and to some extent over time. The new measures perform well in regression analysis explaining productivity across OECD countries and over time. In OECD samples, coefficient estimates are broadly consistent with the private returns underlying the construction of the new measures of human capital. In a wider sample of countries, most estimates imply additional positive social returns. |
| Keywords: | human capital, mean years of schooling, OECD, productivity, returns to education |
| JEL: | E24 I20 I26 |
| Date: | 2019–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1575-en&r=all |
| By: | Bullard, James B. (Federal Reserve Bank of St. Louis) |
| Abstract: | During a presentation in Effingham, Ill., St. Louis Fed President James Bullard noted that the U.S. economy is slowing down relative to 2017 and 2018. He added that the economy faces downside risk that may cause the slowdown to be sharper than expected. “A sharper-than-expected slowdown may make it more difficult for the Federal Open Market Committee (FOMC) to achieve its 2% inflation target,” he said. |
| Date: | 2019–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:347&r=all |
| By: | Lubik, Thomas A. (Federal Reserve Bank of Richmond); Matthes, Christian (Federal Reserve Bank of Richmond); Mertens, Elmar (Deutsche Bundesbank) |
| Abstract: | We study equilibrium determination in an environment where two kinds of agents have different information sets: The fully informed agents know the structure of the model and observe histories of all exogenous and endogenous variables. The less informed agents observe only a strict subset of the full information set. All types of agents form expectations rationally, but agents with limited information need to solve a dynamic signal extraction problem to gather information about the variables they do not observe. We show that for parameter values that imply a unique equilibrium under full information, the limited information rational expectations equilibrium can be indeterminate. We illustrate our framework with a monetary policy problem where an imperfectly informed central bank follows an interest rate rule. |
| Keywords: | Limited information; rational expectations; Kalman filter; belief shocks |
| JEL: | C11 C32 E52 |
| Date: | 2019–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:19-17&r=all |
| By: | Massimiliano Affinito |
| Abstract: | This paper studies the mutual interplay between central bank (CB) liquidity provisions and interbank market (IM) liquidity exchanges, exploring whether the relationship changes in the event of IM impairments and massive CB liquidity injections during global and sovereign crises. The analysis uses a data set containing 17 years of monthly bank-by-bank and counterparty-by-counterparty data collated from 1998 to 2015 in Italy. The results show the existence of complementarity. Banks receiving CB liquidity redistribute more to other banks. When CB liquidity increases exponentially during crises, some healthy banks specialise in interbank lending. The complementarity helps to offset euro area fragmentation via domestic interbank relationships and to adjust the collateral and maturity profiles of banks' liquidity. |
| Keywords: | liquidity, financial and sovereign crises, central bank intervention, interbank |
| JEL: | G21 E52 C30 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:821&r=all |
| By: | Martins-da-Rocha, V. Filipe (Sao Paulo School of Economics-FGV and CNRS); Phan, Toan (Federal Reserve Bank of Richmond); Vailakis, Yiannis (University of Glasgow) |
| Abstract: | We provide a novel characterization of self-enforcing debt limits in a general equilibrium framework of risk sharing with limited commitment, where defaulters are subject to recourse (a fractional loss of current and future endowments) and exclusion from future credit. We show that debt limits are exactly equal to the present value of recourse plus a credit bubble component. We provide applications to models of sovereign debt, private collateralized debt, and domestic public debt. Implications include an original equivalence mapping among distinct institutional arrangements, thereby clarifying the relationship between different enforcement mechanisms and the connection between asset and credit bubbles. |
| Keywords: | Limited commitment; general equilibrium; rational credit bubbles |
| JEL: | E00 E10 F00 |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:19-19&r=all |
| By: | Stephen T. Onifade (Selçuk University Konya,Turkey); Ahmet Ay (Selçuk University Konya, Turkey); Simplice A. Asongu (Yaoundé, Cameroon); Festus V. Bekun (Istanbul Gelisim University, Istanbul, Turkey) |
| Abstract: | The recent exacerbation of unemployment crisis in Nigeria stands to be a serious threat to both socio-economic stability and progress of the country just as the report from the nation’s bureau of statistics shows that at least over 8.5 million people had no gainful employment at all as at the last quarter of the year 2017. It is on the above premise, that the present study explores the link between trade and unemployment for the case of Nigeria with the intention of exploring how the unemployment crisis has been impacted within the dynamics of the country’s trade performance. The empirical evidence shows that the nation’s terms of trade were insignificant to unemployment rate while trade openness and domestic investment, on the other hand, have significant opposing impacts on unemployment in Nigeria over the period of the study. Further breakdowns from the empirical analysis also revealed that the Philips curves proposition is valid within the Nigerian economic context while the evidences for the validity of Okun’s law only exist in the short-run scenario. Based on the empirical results, we recommend that concerted effort should be geared toward stimulating domestic investment by providing adequate financial and infrastructural facilities that will promote ease of doing business while utmost precautions are taken to ensure that unemployment crisis is not exacerbated when combating inflation in the economy in the wake of dynamic trade relations. |
| Keywords: | Nigeria; Unemployment; Trade; Phillips Curves; Okun’s law |
| JEL: | E23 F21 F30 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/079&r=all |
| By: | Ohanian, Lee E. (University of California Los Angeles); Restrepo-Echavarria, Paulina (Federal Reserve Bank of St. Louis); Van Patten, Diana (University of California Los Angeles); Wright, Mark L. J. (Federal Reserve Bank of Minneapolis) |
| Abstract: | The Bretton Woods international financial system, which was in place from roughly 1949 to 1973, is the most significant modern policy experiment to attempt to simultaneously manage international payments, international capital flows, and international currency values. This paper uses an international macroeconomic accounting methodology to study the Bretton Woods system and finds that it: (1) significantly distorted both international and domestic capital markets and hence the accumulation and allocation of capital; (2) significantly slowed the reconstruction of Europe, albeit while limiting the indebtedness of European countries. Our results also provide support for the utility of the accounting methodology in that it finds a sharp change in the behavior of domestic and international capital market wedges that coincides with the breakdown of the system. |
| Keywords: | Bretton Woods; International Payments; Capital Flows |
| JEL: | E21 F21 F41 J20 |
| Date: | 2019–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2019-030&r=all |
| By: | Bullard, James B. (Federal Reserve Bank of St. Louis) |
| Abstract: | St. Louis Fed President James Bullard shared his views on U.S. monetary policy and insuring the U.S. economy against a global slowdown. He also discussed the inverted yield curve and low inflation expectations during an interview with Bloomberg TV. |
| Date: | 2019–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:346&r=all |
| By: | Fong, Joelle H.; Koh, Benedict SK.; Mitchell, Olivia S.; Rohwedder, Susann |
| Abstract: | Over the life-cycle, wealth holdings tend to be highest in the early part of retirement. The quality of financial decisions among older adults is therefore an important determinant of their financial security during the asset drawdown phase. This paper assesses how financial literacy shapes financial decision-making at older ages. We devised a special module in the Singapore Life Panel survey to measure financial literacy to study its relationship with three aspects of household financial and investment behaviors: credit card debt repayment, stock market participation, and adherence to age-based investment glide paths. We found that the majority of respondents age 50+ has some grasp of concepts such as interest compounding and inflation, but fewer know about risk diversification. We provide evidence of a statistically significant positive association between financial literacy and each of the three aspects of suboptimal financial decision-making, controlling for many other factors, including education. A one-unit increase in the financial literacy score was associated with an 8.3 percentage point greater propensity to hold stocks, and a 1.7 percentage point higher likelihood of following an age-appropriate investment glide path. The financial literacy score is only weakly positively linked with timely credit card balance repayment, both in terms of statistical significance and estimate size. |
| Keywords: | retirement,financial literacy,credit card debt,stock market nonparticipation,lifecycleinvestment,household portfolio |
| JEL: | D14 E21 G11 J32 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:630&r=all |
| By: | Mariam Camarero (Jaume I University. Department of Economics, Av. de Vicent Sos Baynat s/n, E-12071 Castellón, Spain); María Dolores Gadea-Rivas (Department of Economic Structure and History and Public Economics, Applied Economics Area, GVia 2. planta 5, University of Zaragoza, 50005-Zaragoza, Spain); Ana Gómez-Loscos (Banco de España, DGEconomics, Statistics and Research, Alcala 48, 28014 Madrid, Spain); Cecilio Tamarit (University of Valencia, INTECO Joint Research Unit. Department of Applied Economics II. PO Box 22.006 - E-46071 Valencia, Spain) |
| Abstract: | A decade after the beginning of the Great Recession, flow external imbalances, measured by the current account (CA) have narrowed markedly. However, stock or net foreign assets (NFA) imbalances have kept increasing and have created challenges for future macroeconomic and financial stability. To date, early warning systems (scoreboards) have focused more on flow than on the stock variables. To approach this problem, in this paper we analyze expansions using two complementary sets of indicators proposed by Harding and Pagan (2002) and Gadea et al. (2017). After controlling for a large set of explanatory variables, we find that the effect of CA imbalances is limited, except when the measures selected take into account past CA developments or some degree of persistence. In contrast, the evolution of NFA seems to be much more explanatory of the time it takes to regain the level of output previous to the recession, as well as the amplitude and the cumulation of the recoveries. Therefore, we conclude that future macro-prudential policies should pay more attention to stock variables to measure external imbalances due to their effects on the characteristics of recoveries. |
| Keywords: | Business cycles, recoveries, NFA, external imbalances, current account |
| JEL: | F21 R12 C23 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:1912&r=all |
| By: | Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa) |
| Abstract: | The research assesses how information and communication technology (ICT) modulates the effect of foreign direct investment (FDI) on economic growth dynamics in 25 countries in Sub-Saharan Africa for the period 1980-2014. The employed economic growth dynamics areGross Domestic Product (GDP) growth, real GDP and GDP per capita while ICT is measured by mobile phone penetration and internet penetration. The empirical evidence is based on the Generalised Method of Moments. The study finds that both internet penetration and mobile phone penetration overwhelmingly modulate FDI to induce overall positive net effects on all three economic growth dynamics. Moreover, the positive net effects are consistently more apparent in internet-centric regressions compared to “mobile phone†-oriented specifications. In the light of negative interactive effects, net effects are decomposed to provide thresholds at which ICT policy variables should be complemented with other policy initiatives in order to engender favorable outcomes on economic growth dynamics. Practical and theoretical implications are discussed. |
| Keywords: | Economic Output; Foreign Investment; Information Technology; Sub-Saharan Africa |
| JEL: | E23 F21 F30 L96 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:aby:wpaper:19/038&r=all |
| By: | Butt, Muhammad Danial; Ahmed, Mumtaz |
| Abstract: | Detection of bubbles in financial markets is an issue of great importance as these split an enduring impact to every sector of the economy leading to substantial losses. In Pakistan, price level has seen abrupt changes which hurts the economic efficiency whereas inflation rates are usually high. So, it is important to detect bubbles present in inflation to have a check whether the hike in inflation is demand driven or there is a prevailing price exuberant behavior that results in sudden boom in inflation. There are very limited studies on detecting bubbles in inflation series for Pakistan. So, the present study takes a lead and address this very important issue by making use of recently developed state of art GSADF approach proposed by Phillips et al. (2015). The empirical analysis is based on five different series which cover inflation rates such as consumer price index (CPI) for the general, the food and the non-food items, the sensitive price index (SPI) and the wholesale price index (WPI). This approach is best suited for testing multiple bubbles as opposed to earlier methods that are designed to test for the presence of only a single bubble in any time series. The empirical findings based on monthly time series data from Jan 2006 to Jan 2019 confirm the existence of multiple bubbles in WPI and CPI non-food. However, for rest of three series, only single bubble has been witnessed. The analysis from the date stamping of bubbles reveal that all bubbles arise during the global financial crisis of 2008 which triggered oil prices resulting in domestic currency depreciation. Some important policy implications are discussed as well. |
| Keywords: | Explosivity; Consumer price index; Wholesale price index, Sensitive price index; GSADF; Simulation |
| JEL: | E31 G00 P24 P44 |
| Date: | 2019–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96705&r=all |
| By: | Butt, Muhammad Danial; Ahmed, Mumtaz |
| Abstract: | Detection of bubbles in financial markets is an issue of great importance as these split an enduring impact to every sector of the economy leading to substantial losses. In Pakistan, price level has seen abrupt changes which hurts the economic efficiency whereas inflation rates are usually high. So, it is important to detect bubbles present in inflation to have a check whether the hike in inflation is demand driven or there is a prevailing price exuberant behavior that results in sudden boom in inflation. There are very limited studies on detecting bubbles in inflation series for Pakistan. So, the present study takes a lead and address this very important issue by making use of recently developed state of art GSADF approach proposed by Phillips et al. (2015). The empirical analysis is based on five different series which cover inflation rates such as consumer price index (CPI) for the general, the food and the non-food items, the sensitive price index (SPI) and the wholesale price index (WPI). This approach is best suited for testing multiple bubbles as opposed to earlier methods that are designed to test for the presence of only a single bubble in any time series. The empirical findings based on monthly time series data from Jan 2006 to Jan 2019 confirm the existence of multiple bubbles in WPI and CPI non-food. However, for rest of three series, only single bubble has been witnessed. The analysis from the date stamping of bubbles reveal that all bubbles arise during the global financial crisis of 2008 which triggered oil prices resulting in domestic currency depreciation. Some important policy implications are discussed as well. |
| Keywords: | Explosivity; Consumer price index; Wholesale price index, Sensitive price index; GSADF; Simulation |
| JEL: | E31 G00 P24 P44 |
| Date: | 2019–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96847&r=all |
| By: | Benigno, Gianluca (Federal Reserve Bank of New York); Chen, Huigang (Uber Technologies Inc.); Otrok, Christopher (University of Missouri, Federal Reserve Bank of St. Louis); Rebucci, Alessandro (John Hopkins University, CEPR); Young, Eric R. (University of Virginia) |
| Abstract: | There is a new and now large literature analyzing government policies for financial stability based on models with endogenous borrowing constraints. These normative analyses build upon the concept of constrained efficient allocation, where the social planner is constrained by the same borrowing limit that agents face. In this paper, we show that the same set of policy tools that implement the constrained efficient allocation can be used by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. The constrained social planner approach may lead to inaccurate characterizations of welfare-maximizing policies relative to the Ramsey approach. |
| Keywords: | constrained efficiency; financial crises; macroprudential policies and capital controls; pecuniary externalities; Ramsey optimal policy; social planner |
| JEL: | E61 F38 F44 H23 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:899&r=all |
| By: | Amano, Robert (Bank of Canada); Carter, Thomas (Bank of Canada); Leduc, Sylvain (Federal Reserve Bank of San Francisco) |
| Abstract: | We construct a model to evaluate the role that the risk of future effective lower bound (ELB) episodes plays as a factor behind the persistently weak inflation witnessed in many advanced economies since the Great Recession. In our model, a range of precautionary channels cause ELB risk to affect inflation and other macroeconomic outcomes even during “normal times” when nominal rates are far away from the ELB. This behavior is enhanced through a growth channel that captures possible long-lasting output declines at the ELB. We show that ELB risk substantially weighs on inflation even when the policy rate is above the ELB. Our model also predicts substantially below-target inflation expectations and negative inflation risk premia. |
| Date: | 2019–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2019-26&r=all |
| By: | Shaghil Ahmed; Ricardo Correa; Daniel A. Dias; Nils Gornemann; Jasper Hoek; Anil K. Jain; Edith X. Liu; Anna Wong |
| Abstract: | China’s economy has become larger and more interconnected with the rest of the world, thus raising the possibility that acute financial stress in China may lead to global financial instability. This paper analyzes the potential spillovers of such an event to the rest of the world with three methodologies: a VAR, an event study, and a DSGE model. We find the sentiment channel to be the primary spillover channel to the United States, affecting global risk aversion and asset prices such as equity prices and the dollar, in addition to modest real effects through the trade channel. In comparison, the combined financial and real effects to other advanced and emerging market economies, especially net commodity exporters, would be more consequential due to their larger direct exposure to China and more limited scope of monetary policy to respond to shocks. |
| Keywords: | China ; Financial crisis ; Spillovers ; Financial system |
| JEL: | F30 G28 E60 |
| Date: | 2019–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1260&r=all |
| By: | D'Erasmo, Pablo (Federal Reserve Bank of Philadelphia); Moscoso Boedo, Herman J. (University of Cincinnati); Pia Olivero, Maria (Drexel University); Sangiacomo, Maximo (Central Bank of Argentina) |
| Abstract: | We study how banks’ exposure to a sovereign crisis gets transmitted onto the corporate sector. To do so we use data on the universe of banks and firms in Argentina during the crisis of 2001. We build a model characterized by matching frictions in which firms establish (long-term) relationships with banks that are subject to balance sheet disruptions. Credit relationships with banks more exposed to the crisis suffer the most. However, this relationship-level effect overstates the true cost of the crisis since profitable firms (e.g., exporters after a devaluation) might find it optimal to switch lenders, reducing the negative impact on overall credit and activity. Using linked bank-firm and firm-level data we find evidence largely consistent with our theory. |
| Keywords: | Sovereign Default; Devaluation; Bank networks |
| JEL: | E32 G21 H63 N26 |
| Date: | 2019–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:19-43&r=all |
| By: | Williams, John C. (Federal Reserve Bank of New York) |
| Abstract: | Remarks at Euromoney Real Return XIII: The Inflation-Linked Products Conference 2019, New York City. |
| Keywords: | inflation; economic growth; monetary policy; uncertainty; unemployment; employment; economic policy; low inflation; global growth |
| Date: | 2019–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:328&r=all |
| By: | Perazzi, Elena |
| Abstract: | I build a general equilibrium model to show that deposits are a special form of financing, that makes banks more suitable to extend long-term loans when confronted with the risks of monetary policy. In the model, banks borrow short-term and lend long-term, are subject to a minimum equity requirement consistent with Basel III, and face a financial friction: they cannot raise equity on the market. Consistent with the "bank-capital channel" of monetary policy, when the risk-free rate increases, the value of the banks' assets and equity are eroded, and banks deleverage by cutting their lending. I show that, thanks to a combination of banks' market power in the deposit market and of the money-like properties of deposits, the profits on deposits are strongly countercyclical, and reduce the contraction of lending at high interest rates due to the bank capital channel. Amid current proposals for narrow banking, this effect provides a rationale for the coexistence of lending and deposit-taking activities in current commercial banks. |
| Keywords: | Deposits, Banks, Long-Term Lending, Narrow Banking |
| JEL: | E5 G21 |
| Date: | 2019–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96716&r=all |
| By: | Robert Rowthorn |
| Abstract: | In an influential article, Delong and Summers (2012) consider the implications of hysteresis for government debt. They derive an upper limit for the after-tax real interest rate. If the interest rate is below this limit, the debt incurred during a one-off fiscal stimulus will be automatically repaid without the need for higher taxes. Their analysis assumes that a one-off stimulus leaves an infinite legacy of future benefits (hysteresis effects) that increase through time. This note extends their analysis to situations where hysteresis effects remain constant or decay in the course of time. By highlighting the hysteresis time profile, it provides a more transparent treatment of debt dynamics. |
| Keywords: | DeLong and Summers, hysteresis, government debt |
| JEL: | E63 H60 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp513&r=all |
| By: | António Afonso; Frederico Silva Leal |
| Abstract: | We estimate short- and long-run elasticities of private consumption for fiscal instruments, using a Fixed Effects model for the 19-euro area countries during the period of 1960-2017, to assess how fiscal elasticities vary during fiscal episodes. According to the results, positive “tax revenue” elasticities indicate that consumers have a Ricardian behaviour, whereby they perceive an increase in taxation to be a sign of future government spending. “Social benefits” appear to have a non-keynesian effect on private consumption. In addition, using a narrative approach to identify fiscal consolidations, it is seen that private consumption continues to exhibit a non-keynesian response to tax increases, both in the short and long-run, and “other expenditures” have a recessive impact during “normal times”. Furthermore, “social benefits” are more contractionary in consolidations than in both expansions and “normal times”. Additionally, after the launch of the EMU, expansionary fiscal consolidations became harder to observe, and “other expenditure” and “investment” lost their non-keynesian role. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:econwp:_30&r=all |
| By: | Gordon, Grey (Federal Reserve Bank of Richmond) |
| Abstract: | Taste shocks result in nondegenerate choice probabilities, smooth policy functions, continuous demand correspondences, and reduced computational errors. They also cause significant computational cost when the number of choices is large. However, I show that, in many economic models, a numerically equivalent approximation may be obtained extremely efficiently. If the objective function has increasing differences (a condition closely tied to policy function monotonicity) or is concave in a discrete sense, the proposed algorithms are O(n log n) for n states and n choice--a drastic improvement over the naive algorithm's O(n2) cost. If both hold, the cost can be further reduced to O(n). Additionally, with increasing differences in two state variables, I propose an algorithm that in some cases is O(n2) even without concavity (in contrast to the O(n3) naive algorithm). I illustrate the usefulness of the proposed approach in an incomplete markets economy and a long-term sovereign debt model, the latter requiring taste shocks for convergence. For grid sizes of 500 points, the algorithms are up to 200 times faster than the naive approach. |
| Keywords: | Computation; Monotonicity; Discrete Choice; Taste Shocks; Sovereign Default; Curse of Dimensionality |
| JEL: | C61 C63 E32 F34 F41 F44 |
| Date: | 2019–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedrwp:19-15&r=all |
| By: | Ahmed, Rashad |
| Abstract: | I investigate the link between economic fundamentals and exchange rate adjustment to commodity price fluctuations. I overcome the traditional issue of simultaneity by exploiting the September 14, 2019 drone attack on two Saudi Arabian refineries as a natural experiment. This unanticipated event caused the largest 1-day global crude oil price spike in over a decade. Using high-frequency exchange rate data for 30 countries, I measure each currency’s return around the event window, and link currency return heterogeneity to country-level economic and monetary fundamentals. Crude export and import intensities were associated with appreciation (depreciation). In addition, countries with current account surpluses, as opposed to deficits, and greater international reserves saw more currency appreciation, thereby buffering the depreciating effects on crude oil importers. Countries with higher policy interest rates, consisting of mostly Emerging Market economies, experienced greater depreciation conditional on crude oil export/import exposure. |
| Keywords: | Commodity, exchange rates, oil price, terms of trade |
| JEL: | E44 F3 F31 Q43 |
| Date: | 2019–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96855&r=all |
| By: | Bassetto, Marco (Federal Reserve Bank of Chicago) |
| Abstract: | A policy of forward guidance has been suggested either as a form of commitment ("Odyssean") or as a way of conveying information to the public ("Delphic"). I analyze the strategic interaction between households and the central bank as a game in which the central bank can send messages to the public independently of its actions. In the absence of private information, the set of equilibrium payoffs is independent of the announcements of the central bank: forward guidance as a pure commitment mechanism is a redundant policy instrument. When private information is present, central bank communication can instead have social value. Forward guidance emerges as a natural communication strategy when the private information in the hands of the central bank concerns its own preferences or beliefs: while forward guidance per se is not a substitute for the central bank's commitment or credibility, it is an instrument that allows policymakers to leverage their credibility to convey valuable information about their future policy plans. It is in this context that "Odyssean forward guidance" can be understood. |
| Keywords: | Forward guidance; monetary policy; interest rates |
| JEL: | C5 E4 E5 |
| Date: | 2019–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2019-05&r=all |
| By: | Michal Horvath (University of York); Zuzana Siebertova (Council for Budget Responsibility) |
| Abstract: | Fundamental income tax reforms are usually justified by or opposed because of large employment implications. The employment gains and losses are supposed to originate from various behavioural and dynamic effects of tax reforms over the medium to long term. To test the limits of such arguments, we study hypothetical radical measures designed to have potentially large employment effects inthe context of Slovakia. A close inspection of the different implications of such tax reforms for adjustment on the extensive margin of the labour market reveals that promises or worries of large employment effects have little empirical support. This is because labour supply responses to ‘making work pay’ are small, the requirement of revenue neutrality limits the extent to which (dis)incentivising work is feasible, and because income effects arising from positive assortative mating within families counteract total individual-level effects. Our framework suggests the focus of tax reformers should be on the variation in effective labour supply coming from intensive margin effects. |
| Keywords: | microsimulation, dynamic general equilibrium, employment, labour supply elasticity, tax reform |
| JEL: | E24 H24 H31 J22 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbe:wpaper:201903&r=all |
| By: | Michal Horváth; Zuzana Siebertová |
| Abstract: | Fundamental income tax reforms are usually justified by or opposed because of large employment implications. The employment gains and losses are supposed to originate from various behavioural and dynamic effects of tax reforms over the medium to long term. To test the limits of such arguments, we study hypothetical radical measures designed to have potentially large employment effects in the context of Slovakia. A close inspection of the different implications of such tax reforms for adjustment on the extensive margin of the labour market reveals that promises or worries of large employment effects have little empirical support. This is because labour supply responses to ‘making work pay’ are small, the requirement of revenue neutrality limits the extent to which (dis)incentivising work is feasible, and because income effects arising from positive assortative mating within families counteract total individual-level effects. Our framework suggests the focus of tax reformers should be on the variation in effective labour supply coming from intensive margin effects. |
| Keywords: | microsimulation, dynamic general equilibrium, employment, labour supply elasticity, tax reform |
| JEL: | E24 H24 H31 J22 |
| Date: | 2019–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:cel:dpaper:54&r=all |
| By: | Juan A. Máñez Castillejo (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); María E. Rochina-Barrachina (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Juan A. Sanchis Llopis (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).) |
| Abstract: | This work analyses how SMEs (as compared to large firms) endured the onset of the recent Great Recession through the engagement in internationalization and innovation strategies. We focus on the SMEs strategies of exporting and undertaking R&D and the impact of these activities on firms’ markups (i.e., a measure of performance). This study will allow determining whether performing these strategic activities allowed SMEs to get advantages to sustain markups, not only in an expansive period but also during the hit of the hardest period of the recent financial and economic crisis. The data we use is the Spanish survey on firms’ strategies (ESEE), 1993-2009. We obtain two main results: first, for SMEs the strategies of only exporting or performing both activities explain higher markups; and, second, there is confirmation that R&D played an increasing role in protecting firms against a decrease in markups in the onset of the crisis. |
| Keywords: | SMEs, Exports, R&D, markups, the Great Recession |
| JEL: | D24 F14 O32 E32 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:eec:wpaper:1910&r=all |
| By: | Akcigit, Ufuk (University of Chicago); Dinlersoz, Emin M. (U.S. Census Bureau); Greenwood, Jeremy (University of Pennsylvania); Penciakova, Veronika (Federal Reserve Bank of Atlanta) |
| Abstract: | Venture capital (VC) and growth are examined both empirically and theoretically. Empirically, VC-backed startups have higher early growth rates and initial patent quality than non-VC-backed ones. VC backing increases a startup's likelihood of reaching the right tails of the firm size and innovation distributions. Furthermore, outcomes are better for startups matched with more experienced venture capitalists. An endogenous growth model, where venture capitalists provide both expertise and financing for business startups, is constructed to match these facts. The presence of venture capital, the degree of assortative matching between startups and financiers, and the taxation of VC-backed startups matter significantly for growth. |
| Keywords: | venture capital; assortative matching; endogenous growth; IPO; management; mergers and acquisitions; research and development; startups; synergies; taxation; patents |
| JEL: | E13 E22 G24 L26 O16 O31 O40 |
| Date: | 2019–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2019-17&r=all |
| By: | Sarthak Behera; Hyeongwoo Kim |
| Abstract: | We propose factor-based out of sample forecasting models for US dollar real exchange rates. We estimate latent common factors employing an array of data dimensionality reduction approaches that include the Principal Component Analysis, Partial Least Squares, and the LASSO for a large panel of 125 monthly frequency US macroeconomic time series data. We augment two benchmark models, a stationary autoregressive model and the random walk model, with estimated common factors to formulate out-of-sample forecasts of the real exchange rate. Empirical findings demonstrate that our factor augmented models outperform the benchmark models at longer horizons when factors are extracted from real activity variables excluding financial sector variables. Factors obtained from financial market variables overall play a limited role in forecasting. Our data-driven models tend to perform better than models with international factors that are motivated by exchange rate determination theories. |
| Keywords: | US Dollar Real Exchange Rate; Principal Component Analysis; Partial Least Squares; LASSO; Out-of-Sample Forecast |
| JEL: | C38 C53 C55 F31 G17 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2019-04&r=all |
| By: | Nicolás Rivera Garzón |
| Abstract: | El objetivo del artículo es identificar los impactos y los canales de transmisión de la política monetaria en la economía colombiana para el periodo 2008:M2 a 2019:M2. Para ello, se estima un modelo de vectores autorregresivos aumentado con variables exógenas (VAR-X) para cada canal con sus respectivas funciones de impulso respuesta y pruebas de causalidad de Granger. Los resultados obtenidos demuestran la existencia de los canales de transmisión de tasa de interés, tipo de cambio y préstamo bancario; además, niegan la existencia del canal de hoja de balance. Los impactos más significativos sobre la producción industrial y la variación porcentual del IPC son generados por el canal de tipo de cambio; seguidos en magnitud por los canales de tasa de interés y préstamo bancario. *** The objective of the article is to identify the impacts and transmission channels of monetary policy in the Colombian economy for the period 2008:M2 to 2019:M2. With this objective in mind, we estimate a model of autoregressive vectors augmented with two exogenous variables (VAR-X) for each channel with their respective impulse response functions and Granger causality tests. The results obtained show the existence of transmission channels of interest rate, exchange rate and bank loan; in addition, they deny the existence of the balance sheet channel. The most significant impacts on industrial production and the percentage variation of the CPI are generated by the exchange rate channel; followed in magnitude by the interest rate and bank loan channels. |
| Keywords: | política monetaria, canales de transmisión, impactos monetarios, vectores autorregresivos |
| JEL: | C32 E52 N16 |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000176:017580&r=all |
| By: | Zuzana Smidova |
| Abstract: | This paper reviews recent empirical literature on policy drivers of two educational outcomes - years of schooling and rates of return - that form the OECD’s aggregate measure of human capital. The paper sets the literature findings into the context of current educational polices in place in OECD countries. While much of the empirical results are mixed, depend on country and time coverage as well as estimation methods, the review identifies the following policies most likely to promote better educational outcomes: quality pre-primary education, quality teaching, accountability and autonomy of teaching institutions, comprehensive lower secondary education and availability of individual financing for the pursuit of higher education. |
| Keywords: | early childhood education, education, education attainment, education quality, higher education, OECD, primary school, secondary school, teacher |
| JEL: | E24 I20 I26 I28 I25 J24 |
| Date: | 2019–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1577-en&r=all |
| By: | Bullard, James B. (Federal Reserve Bank of St. Louis) |
| Abstract: | During a presentation in London, St. Louis Fed President James Bullard noted that the U.S. economy is slowing down relative to 2017 and 2018. The economy faces downside risk that may cause a sharper-than-expected slowdown, which “may make it more difficult for the Federal Open Market Committee (FOMC) to achieve its 2% inflation target,” he said. |
| Date: | 2019–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:350&r=all |
| By: | Gordon Y. Liao |
| Abstract: | This paper examines the connection between deviations in covered interest rate parity and differences in the credit spread of bonds of similar risk but different currency denomination. These two pricing anomalies are highly aligned in both the time series and the cross-section of currencies. The composite of these two pricing deviations – the corporate basis – represents the currency-hedged borrowing cost difference between currency regions and explains up to a third of the variation in the aggregate corporate debt issuance flow. I show that arbitrage aimed at exploiting one type of security anomaly can give rise to the other. |
| Keywords: | Covered interest rate parity ; Limits of arbitrage ; Credit market segmentation ; Debt issuance ; Dollar convenience yield ; Foreign exchange rate hedge |
| JEL: | E44 F3 F55 G12 G15 G23 G28 G32 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1255&r=all |
| By: | McLean, Sheldon; Alleyne, Dillon; Hendrickson, Michael; Oyolola, Maharouf; Pantin, Machel; Skerrette, Nyasha; Tokuda, Hidenobu |
| Abstract: | This overview examines the economic performance of economies of the Caribbean in 2018 and comprises four chapters. The first chapter provides a comparative analysis across Caribbean economies of the main macroeconomic variables, namely GDP growth, monetary indicators, as well as fiscal and external accounts. The second chapter looks at the key development imperatives for the Caribbean. The third chapter concludes, and the final chapter includes individual country briefs that give an overview of the economic situation for the Bahamas, Barbados, Belize, Guyana, Jamaica, Suriname and a subregional assessment of the countries of the Eastern Caribbean Currency Union. |
| Keywords: | CREDITO, INFLACION, CONDICIONES ECONOMICAS, MACROECONOMIA, DESARROLLO ECONOMICO, POLITICA ECONOMICA, POLITICA FISCAL, POLITICA MONETARIA, DEUDA PUBLICA, COMERCIO EXTERIOR, INVERSION EXTRANJERA DIRECTA, POLITICA DE DESARROLLO, INDICADORES ECONOMICOS, ECONOMIC CONDITIONS, MACROECONOMICS, ECONOMIC DEVELOPMENT, ECONOMIC POLICY, FISCAL POLICY, MONETARY POLICY, PUBLIC DEBT, CREDIT, INFLATION, FOREIGN TRADE, FOREIGN DIRECT INVESTMENT, DEVELOPMENT POLICY, ECONOMIC INDICATORS |
| Date: | 2019–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:ecr:col033:44914&r=all |
| By: | Christopher Henry; Kim Huynh; Gradon Nicholls; Mitchell Nicholson |
| Abstract: | The Bank of Canada continues to use the Bitcoin Omnibus Survey (BTCOS) to monitor trends in Canadians’ awareness, ownership and use of Bitcoin. The most recent iteration was conducted in late 2018, following an 85 percent decline in the price of Bitcoin throughout the year. In 2017, almost half of Bitcoin adopters reported investing as their primary reason for owning it. This implies that the dramatic price drop could have affected whether Canadians continue to own Bitcoin and, if they do, what they use it for. The BTCOS has been conducted each year since 2016 with slight changes and improvements in every iteration. For 2018, we added questions on Canadians’ financial literacy, their plans to stop using cash and their preferences over features of online transactions. We also improved our way of calibrating sample estimates to represent the overall Canadian population with respect to demographic composition. The survey shows that from 2016 to 2018, both the share of Canadians who are aware of Bitcoin and who own bitcoin increased. But the share of past owners also increased, suggesting an influx of Bitcoin owners who sold their holdings after 2017. The main reason for owning Bitcoin continued to be for store of value or investment purposes, though this decreased slightly from 2017. Finally, Bitcoin owners differed from the overall population in two ways: they were less financially literate and more likely to say they plan to stop using cash. |
| Keywords: | Bank notes; Digital Currencies and Fintech; Econometric and statistical methods |
| JEL: | C12 E4 O51 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:19-10&r=all |
| By: | Massimo Guidolin; Manuela Pedio; Alessandra tosi |
| Abstract: | We analyze the time-varying nature of the price discovery process in the sovereign debt market over the sample period January 2006 – September 2015. In particular, we test whether the cointegration relationship that should tie bond and CDS spreads together holds over the entire sample. In addition, we investigate which (if any) of the two markets leads the price discovery in each of a number of sub-samples. We focus on ten European countries (Portugal, Italy, Ireland, Greece, Spain, Netherland, Germany, France, Austria, and Belgium), the UK, and the US. We find that while for all the peripheral countries but Greece the CDS and bond spreads show a long-run equilibrium relationship over the full sample, this is not the case for core European countries, the UK, and the US. Moreover, when the cointegration relationship fails to hold, none of the two markets appears to lead the price discovery process. |
| Keywords: | Treasury bond spreads, credit default swaps, sovereign credit risk, vector error correction |
| JEL: | C32 E52 E43 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp19120&r=all |
| By: | Boerma, Job (Federal Reserve Bank of Minneapolis); Karabarbounis, Loukas (Federal Reserve Bank of Minneapolis) |
| Abstract: | During the past two decades, households experienced increases in their average wages and expenditures alongside with divergent trends in their wages, expenditures, and time allocation. We develop a model with incomplete asset markets and household heterogeneity in market and home technologies and preferences to account for these labor market trends and assess their welfare consequences. Using micro data on expenditures and time use, we identify the sources of heterogeneity across households, document how these sources have changed over time, and perform counterfactual analyses. Given the observed increase in leisure expenditures relative to leisure time and the complementarity of these inputs in leisure technology, we infer a significant increase in the average productivity of time spent on leisure. The increasing productivity of leisure time generates significant welfare gains for the average household and moderates negative welfare effects from the rising dispersion of expenditures and time allocation across households. |
| Keywords: | Time use; Consumption; Leisure productivity; Inequality |
| JEL: | D10 D60 E21 J22 |
| Date: | 2019–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:763&r=all |
| By: | Rosengren, Eric S. (Federal Reserve Bank of Boston) |
| Abstract: | It was an eventful August in the financial markets amid talk of additional tariffs and tax cuts, the falling 10-year Treasury rate, and volatility in stock prices. But the economic data and forecasts indicate a relatively good domestic economy. |
| Keywords: | financial markets; tariffs; tax cuts; data; financial forecasts; economic conditions; inverted yield curve; monetary policy |
| Date: | 2019–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:147&r=all |
| By: | Balázs Égert; Jarmila Botev; David Turner |
| Abstract: | This paper uses a new measure of human capital that works much better in explaining productivity in OECD countries compared to earlier measures of human capital to investigate the educational policy drivers of human capital. A novel methodology is utilised by interacting educational policies, for which time series coverage is very poor, with time-varying core drivers of human capital such as public spending on education. In such a framework, policy effects can only be assessed indirectly as they amplify or attenuate the effect of education spending on human capital. The results suggest that higher attendance at pre-primary education, greater autonomy of schools and universities, a lower student-to-teacher ratio, higher age of first tracking in secondary education and lower barriers to funding to students in tertiary education all tend to boost human capital through amplifying the positive effects of greater public spending on education. Benefits from pre-primary education are particularly high for countries with an above-average share of disadvantaged students. School autonomy yields high benefits especially in countries where schools are subject to external accountability. |
| Keywords: | economic growth, education policies, human capital structural reforms, OECD |
| JEL: | E24 I20 I28 I25 J24 |
| Date: | 2019–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1576-en&r=all |
| By: | Bullard, James B. (Federal Reserve Bank of St. Louis) |
| Abstract: | St. Louis Fed President James Bullard welcomed Federal Reserve Governor Michelle “Miki” Bowman, members of the St. Louis Fed’s advisory councils, members of the media and others to the Bank’s Fed Listens meeting. This meeting is part of the FOMC’s comprehensive review of its monetary policy strategy, tools and communications. |
| Date: | 2019–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:351&r=all |
| By: | Hu, Ruiyang; Yang, Yibai; Zheng, Zhijie |
| Abstract: | This paper develops a quality-ladder growth model with elastic labor supply and distortionary taxes to analyze the effects of different subsidy instruments: subsidies to the production of final goods, subsidies to the purchase of intermediate goods, and subsidies to research and development (R&D). The model is calibrated to the US data to compare the growth and welfare implications of these subsidies. The main results are as follows. First, a coordination of all instruments attains the social optimum. Second, as for the use of a single instrument, the R&D subsidy is less growth-enhancing and welfare-improving than the other subsidies. Finally, as for the use of a mix of any two instruments, subsidizing the production of final goods and the purchase of intermediate goods is most effective in promoting growth but least effective in raising welfare. |
| Keywords: | Economic Growth; R&D; Quality Ladder; Subsidies |
| JEL: | D61 E62 O31 O38 |
| Date: | 2019–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:96801&r=all |
| By: | Heise, Sebastian (Federal Reserve Bank of New York); Porzio, Tommaso (Columbia Business School) |
| Abstract: | We develop a job-ladder model with labor reallocation across firms and space, which we design to leverage matched employer-employee data to study differences in wages and labor productivity across regions. We apply our framework to data from Germany: twenty-five years after the reunification, real wages in the East are still 26 percent lower than those in the West. We find that 60 percent of the wage gap is due to labor being paid a higher wage per efficiency unit in West Germany, and quantify three distinct barriers that prevent East Germans from migrating west to obtain a higher wage: migration costs, workers' preferences to live in their home region, and more frequent job opportunities received from home. Interpreting the data as a frictional labor market, we estimate that these spatial barriers to mobility are small, which implies that the spatial misallocation of workers between East and West Germany has at most moderate aggregate effects. |
| Keywords: | employment; aggregate labor productivity; labor mobility; migration |
| JEL: | E24 J61 O15 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:898&r=all |
| By: | Vespignani, Joaquin L. (University of Tasmania); Raghavan, Mala (University of Tasmania); Majumder, Monoj Kumar (Sher-e-Bangla Agricultural University) |
| Abstract: | An important economic paradox that frequently arises in the economic literature is that countries with abundant natural resources are poor in terms of real gross domestic product per capita. This paradox, known as the “resource curse,” is contrary to the conventional intuition that natural resources help to improve economic growth and prosperity. Using panel data for 95 countries, this study revisits the resource curse paradox in terms of oil resource abundance for the period 1980–2017. In addition, the study examines the role of trade openness in influencing the relationship between oil abundance and economic growth. The study finds that trade openness is a possible avenue to reduce the resource curse. Trade openness allows countries to obtain competitive prices for their resources in the international market and access advanced technologies to extract resources more efficiently. Therefore, natural resource–rich economies can reduce the resource curse by opening themselves to international trade. |
| Keywords: | Oil rents; real GDP per capita; trade openness; dynamic panel data model |
| JEL: | E23 F13 Q43 |
| Date: | 2019–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:370&r=all |
| By: | Delle Monache, Davide (Bank of Italy); Petrella, Ivan (University of Warwick); Venditti, Fabrizio (European Central Bank) |
| Abstract: | In this paper we develop a general framework to analyze state space models with timevarying system matrices, where time variation is driven by the score of the conditional likelihood. We derive a new filter that allows for the simultaneous estimation of the state vector and of the time-varying matrices. We use this method to study the timevarying relationship between the price dividend ratio, expected stock returns and expected dividend growth in the US since 1880. We find a significant increase in the long-run equilibrium value of the price dividend ratio over time, associated with a fall in the longrun expected rate of return on stocks. The latter can be attributed mainly to a decrease in the natural rate of interest, as the long-run risk premium has only slightly fallen. |
| Keywords: | state space models ; time-varying parameters ; score-driven models ; equity premium ; present-value models ; |
| JEL: | C32 C51 E44 G12 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wrkemf:29&r=all |
| By: | Akintoye V. Adejumo (Obafemi Awolowo University, Ile-Ife, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | Globally, investments in physical and human capital have been identified to foster real economic growth and development in any economy. Investments, which could be domestic or foreign, have been established in the literature as either complements or substitutes in varying scenarios. While domestic investments bring about endogenous growth processes, foreign investment, though may be exogenous to growth, has been identified to bring about productivity and ecological spillovers. In view of these competing–conflicting perspectives, this chapter examines the differential impacts of domestic and foreign investments on green growth in Nigeria during the period 1970-2017. The empirical evidence is based on Auto-regressive Distributed Lag (ARDL) and Granger causality estimates. Also, the study articulates the prospects for growth sustainability via domestic or foreign investments in Nigeria. The results show that domestic investment increases CO2 emissions in the short run while foreign investment decreases CO2 emissions in the long run. When the dataset is decomposed into three sub-samples in the light of cycles of investments within the trend analysis, findings of the third sub-sample (i.e. 2001-2017) reveal that both types of investments decrease CO2 emissions in the long run while only domestic investment has a negative effect on CO2 emissions in the short run. This study therefore concludes that as short-run distortions even out in the long-run, FDI and domestic investments has prospects for sustainable development in Nigeria through green growth. |
| Keywords: | Investments; Productivity; Sustainability; Growth |
| JEL: | E23 F21 F30 O16 O55 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:19/078&r=all |
| By: | Cooper, Daniel H. (Federal Reserve Bank of Boston); Dynan, Karen E. (Harvard University); Rhodenhiser, Hannah (Federal Reserve Bank of Boston) |
| Abstract: | While the Panel Study of Income Dynamics (PSID) has much to offer researchers studying household behavior, one limitation is that its summary measure of wealth is not as broad as those of other commonly used surveys, such as the Survey of Consumer Finances (SCF), because it does not include the value of defined-contribution (DC) pensions. This paper describes the pension data available in the PSID and shows how they can be used to create a more comprehensive picture of household finances. We then compare various measures derived from these data with their counterparts from the SCF. Along a number of dimensions, the PSID data line up fairly well. Notably, an augmented summary measure of PSID wealth that includes the value of DC pensions is considerably closer to the SCF summary measure than to the standard measure for the median household. We conclude by presenting several examples of research areas where using a broader measure of wealth might be important. |
| Keywords: | household wealth; retirement assets; household survey data |
| JEL: | E21 |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:19-6&r=all |
| By: | Werner Roeger; Janos Varga; Jan in't Veld; Lukas Vogel |
| Abstract: | This paper studies the effects of labour market reforms on the functional distribution of income in a DSGE model (Roeger et al., 2008) with skill differentiation, in which households supply three types of labour: low-, medium- and high-skilled. The households receive income from labour, tangible capital, intangible capital, financial wealth and transfers. We trace how structural reforms in the labour market affect these different types of income. The quantification of labour market reforms is based on changes in structural indicators that significantly reduce the gap of the EU average income towards the best-performing EU countries. We find a general trade-off between an increase in employment for a particular group and the income of the average group member relative to income per capita. Reforms that increase employment of low- and medium-skilled workers imply a trade-off between employment and wages in the low- and medium-skilled group, due to the increase in the skill-specific supply of labour. Capital owners generally benefit from labour market reforms, with an increasing share in total income. This can be attributed to limited entry into the final goods production sector, underlining the importance of product market reforms in addition to labour market reforms. |
| Keywords: | labour market reforms, dynamic general equilibrium modelling, income distribution, inequality |
| JEL: | C33 D58 E25 J20 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7918&r=all |
| By: | Phuong Le (Paris-Sud University); Cuong Le Van (IPAG Business School, PSE, CNRS, TIMAS (Vietnam)); Anh Ngoc Nguyen (Development and Policies Research Center (DEPOCEN), Hanoi, Vietnam); Ngoc Minh Nguyen (University of Nantes, DEPOCEN (Vietnam)); Phu Nguyen Van (BETA, CNRS & University of Strasbourg, TIMAS (Vietnam)); Dinh-Tri Vo (IPAG Business School, University of Economics Hochiminh City) |
| Abstract: | We first consider the question of the productivity of the economy of Vietnam at the macro level. With theoretical models and empirical data, we find out the Leontief production function, and its associated TFP (Total Factor Productivity). We show that the TFP is one of the main engines of Vietnam economic growth. However when we move to the micro level with the capital productivity of 2,835 State Owned Enterprises (SOEs), we discover there exists an over utilization of the physical capital and more importantly, diversion of the capital stock. This diversion may be due to a waste of capital stocks or to a special form of bribery we call "hidden overhead". To summarize, economic growth in Vietnam my be enhanced by investing in the founding components of TFP such as new technology, Human Capital, better organisational system, but also by fighting the bribery and the over utilization of the physical capital |
| Keywords: | Productivity; Production Function; TFP; Hidden Overhead. |
| JEL: | E60 O11 P21 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:dpc:wpaper:0119&r=all |