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on Macroeconomics |
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Issue of 2021‒05‒24
150 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Eliphas Ndou |
| Abstract: | Ndou et al (2019) showed that, in absolute terms, the decline in household consumption due to the monetary policy tightening shocks exceeds the increase in household consumption, following the monetary policy loosening shocks of the same magnitude. This paper applies a counterfactual vector autoregression (VAR) approach to determine whether the household net financial wealth explains the asymmetric reaction of household consumption to monetary policy shocks in South Africa. I find that the percentage of fluctuations in the consumption changes attributed to the wealth changes is much bigger to the monetary policy tightening shocks compared to the loosening shocks. In addition, I find that the household net financial wealth channel propagates the changes in the household consumption more to the monetary policy tightening shocks than to the monetary policy loosening shocks. I reach the same conclusion using household net worth. This finding of asymmetric household consumption reaction implies that the monetary policy tightening stance will slow down economic growth more than the loosening shock can stimulate it. |
| Keywords: | Household net financial wealth, Consumption, Monetary policy, counterfactual VAR model |
| JEL: | E21 E52 E58 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:834&r= |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research); Prashant Parab (Indira Gandhi Institute of Development Research) |
| Abstract: | We examine the efficacy of expectations channel of monetary policy transmission in India using survey-based expectations of households and professional forecasters in a Structural Vector Auto Regression (SVAR) framework. To analyse the fixed point between inflation and inflation expectations, we estimate how expectations shocks feed into the dynamics of macroeconomic aggregates. Second, we find the shocks affecting these expectations. Third, we estimate shocks influencing core inflation. SPF expectations shocks affect headline and food inflation and RBI projections. Petrol price shocks, RBI projection shocks and supply shocks (headline inflation) affect household inflation expectations. Food inflation affects expectations in the short run while core inflation has long-run influence. 3-month-ahead SPF forecasts are influenced by supply-side shocks, monetary policy shocks and RBI projections. Results are robust to alternative identifications. In the early years of flexible inflation targeting that we cover the main interaction was between SPF forecasts and RBI projections on to core. The fixed point was stable because the response of each variable was less than unity. The evidence indicates the expectations channel of transmission was more effective than the aggregate demand channel. |
| Keywords: | Household expectations, Survey of professional forecasters, Central bank communications, Expectations channel, Structural vector auto regression |
| JEL: | D83 D84 E52 E58 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2021-011&r= |
| By: | Gürkaynak, Refet S.; Kara, A. Hakan; Kisacikoglu, Burçin; Lee, Sang Seok |
| Abstract: | Central banks unexpectedly tightening policy rates often observe the exchange value of their currency depreciate, rather than appreciate as predicted by standard models. We document this for Fed and ECB policy days using eventstudies and ask whether an information effect, where the public attributes the policy surprise to an unobserved state of the economy that the central bank is signaling by its policy may explain the abnormality. It turns out that many informational assumptions make a standard two- country New Keynesian model match this behavior. To identify the particular mechanism, we condition on multiple asset prices in the eventstudy and model implications for these. We find that there is heterogeneity in this dimension in the eventstudy and no model with a single regime can match the evidence. Further, even after conditioning on possible information effects driving longer term interest rates, there appear to be other drivers of exchange rates. Our results show that existing models have a long way to go in reconciling eventstudy analysis with model-based mechanisms of asset pricing. |
| Keywords: | central bank information effect; Exchange rate response to monetary policy; open economy macro-finance modeling |
| JEL: | E43 E44 E52 E58 G14 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15289&r= |
| By: | Bonciani, Dario (Bank of England); Oh, Joonseok (Freie Universität Berlin) |
| Abstract: | When the economy is in a liquidity trap and households have a precautionary motive to save against unemployment risk, adverse demand shocks cause severe deflationary spirals and output contractions. In this context, we study the implications of optimal monetary policy, which consists of keeping the nominal rate at zero longer than implied by current macroeconomic conditions. Under such policy and incomplete markets, expected improvements in labour market conditions mitigate the rise in unemployment risk and decline in demand. As a result, market incompleteness may alleviate contractions in output and inflation during a liquidity trap. However, reducing market incompleteness mitigates the fall in demand under realistic monetary policy rules. |
| Keywords: | Unemployment risk; Liquidity trap; Zero lower bound; Monetary policy |
| JEL: | E21 E24 E32 E52 E61 |
| Date: | 2021–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0920&r= |
| By: | Karadi, Peter; Schoenle, Raphael; Wursten, Jesse |
| Abstract: | We use microdata to estimate the strength of price selection - a key metric for the effect of monetary policy on the real economy. We find that price adjustment pressure at the product level does not significantly influence the probability of price adjustment in response to identified monetary and credit shocks, suggesting price selection is absent. This happens even though prices do respond significantly both to aggregate shocks and product-level adjustment pressure directly. Our results are broadly consistent with second-generation state-dependent pricing models and sizable effects of monetary policy on the real economy. |
| Keywords: | identified credit and monetary policy shocks; monetary non-neutrality; PPI microdata; price-gap proxy; scanner data; State-dependent pricing |
| JEL: | E31 E32 E52 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15383&r= |
| By: | Niepelt, Dirk |
| Abstract: | We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with "pseudo wedges" and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017. |
| Keywords: | bank profits; Central bank digital currency; deposits; equivalence; Friedman Rule; monetary policy; money creation; Ramsey Policy; Reserves |
| JEL: | E42 E43 E51 E52 G21 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15457&r= |
| By: | Jorge Miranda-Pinto (School of Economics, University of Queensland; MRG - School of Economics, The University of Queensland); Gang Zhang |
| Abstract: | We show that, unlike any other recession after World War II, sectoral output comovement significantly increased during the Great Recession. On the other hand, trade credit supply, as measured by the ratio of account receivables to the total value of outputs, collapsed during the Great Recession. We show that sectoral comovement was larger for sectors connected through trade credit. We then develop a multisector model with occasionally binding credit constraints and endogenous supply of trade credit to explain these facts. The model shows that equilibrium trade credit reflects both the intermediate supplier’s and client’s bank lending conditions, and thus has asymmetric effects on sectoral outputs. When banking shocks are idiosyncratic, trade credit serves as a mitigation mechanism as firms are able to substitute bank loans for trade credit. However, when banking shocks are strongly correlated, trade credit amplifies the negative financial shock and generates the sharp increase in sectoral comovement observed during the Great Recession. We show that production network models with reduced form wedges are unable to generate this pattern, and that a model with endogenous trade credit amplifies the Great Recession in 18%. |
| Keywords: | Sectoral Comovement, Production Network, Trade Credit, Financial Friction |
| JEL: | C67 E23 E32 E44 E51 F40 G30 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqmrg6:47&r= |
| By: | Vincent Dadam; Nicola Viegi |
| Abstract: | This paper estimates a New Keynesian Wage Phillips Curve for South Africa to investigate the responsiveness of nominal wages to labour market conditions. The estimation is based on a model with staggered nominal wages setting, where all variations in hired labour input is taking place at the extensive margin. First, we estimate the model using aggregate data from 1971 to 2013. Aggregate estimation results show that private sector nominal wages are not very responsive to employment conditions, while they also reveal a certain sensitivity to inflation and quite a good correlation with inflation expectations. On the other hand, the relationship between nominal wage inflation and price inflation is quite strong and robust for the whole sample. However, it becomes quantitatively weak for the inflation targeting period. In that period, trade unions inflation expectations are instead strongly correlated with nominal wage inflation.In the second part of the paper, we assess the response of nominal wages to employment, labour productivity and output prices, given the reservation wage, using a panel of nine industrial sectors over the period 1970-2013. The findings confirm that nominal wage inflation has consistently outpaced the growth in productivity, even after correcting for price inflation, and that employment conditions had little effect on wage dynamics. We also test for the possibility that the dynamic of wages is anchored by an underlined reservation wage to investigate the presence of an error correction term in the wage equation for South Africa.The overall picture that comes out from the analysis is that of a wage formation mechanism that is very insensitive to overall macroeconomic conditions. |
| Keywords: | Wage rigidities, unemployment, Labour market, Phillips curve, New Keynesian |
| JEL: | E2 E24 E26 E31 E12 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:847&r= |
| By: | Dengler, Thomas (Humboldt University Berlin); Gehrke, Britta (University of Rostock) |
| Abstract: | In the Covid-19 crisis, most OECD countries use short-time work schemes (subsidized working time reductions) to preserve employment relationships. This paper studies whether short-time work can save jobs through stabilizing aggregate demand in recessions. We build a New Keynesian model with incomplete asset markets and labor market frictions, featuring an endogenous firing as well as a short-time work decision. In recessions, short-time work reduces the unemployment risk of workers, which mitigates their precautionary savings motive and aggregate demand falls by less. Using a quantitative model analysis, we show that this channel can increase the stabilization potential of short-time work over the business cycle up to 55%, even more when monetary policy is constrained by the zero lower bound. Further, an increase of the short-time work replacement rate can be more effective compared to an increase of the unemployment benefit replacement rate. |
| Keywords: | short-time work, fiscal policy, incomplete asset markets, unemployment risk, matching frictions |
| JEL: | E21 E24 E32 E52 E62 J63 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14329&r= |
| By: | Barbone Gonzalez, Rodrigo; Blanco Barroso, João Barata R.; Peydró, José Luis; van Doornik, Bernardus |
| Abstract: | We show that countercyclical liquidity policy smooths credit supply cycles, with stronger crisis effects. For identification, we exploit the Brazilian supervisory credit register and liquidity policy changes on reserve requirements, that affected banks differentially and have a monetary and prudential purpose. Liquidity policy strongly attenuates both the credit crunch in bad times and high credit supply in booms. Strong economic effects are twice as large during the crisis easing than during the boom tightening. Finally, in crises, liquidity easing: increase less credit supply by more financially constrained banks; and collateral requirements increase substantially, especially by banks providing higher credit supply. |
| Keywords: | Credit cycles; liquidity; macroprudential and monetary policy; reserve requirements |
| JEL: | E51 E52 E58 G21 G28 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15274&r= |
| By: | Nakata, Taisuke; Schmidt, Sebastian |
| Abstract: | We study optimal time-consistent monetary and fiscal policy in a New Keynesian model where occasional declines in agents' confidence give rise to persistent liquidity trap episodes. Insights from widely-studied fundamental-driven liquidity traps are not a useful guide for enhancing welfare in this model. Raising the inflation target, appointing an inflation-conservative central banker, or allowing for the use of government spending as an additional stabilization tool can exacerbate deflationary pressures and demand deficiencies during the liquidity trap episodes. However, appointing a policymaker who is sufficiently less concerned with government spending stabilization than society eliminates expectations-driven liquidity traps. |
| Keywords: | discretion; effective lower bound; Fiscal policy; monetary policy; Policy Delegation; Sunspot equilibria |
| JEL: | E52 E61 E62 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15422&r= |
| By: | Ignaszak, Marek; Jung, Philip; Kuester, Keith |
| Abstract: | Consider a union of atomistic member states, each faced with idiosyncratic business-cycle shocks. Private cross-border risk-sharing is limited, giving a role to a federal unemployment-based transfer scheme. Member states control local labor-market policies, giving rise to a trade-off between moral hazard and insurance. Calibrating the economy to a stylized European Monetary Union, we find notable welfare gains if the federal scheme's payouts take the member states' past unemployment level as a reference point. Member states' control over policies other than unemployment benefits can limit generosity during the transition phase. |
| Keywords: | Fiscal Federalism; labor-market policy; Search and Matching; Unemployment reinsurance |
| JEL: | E24 E32 E62 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15465&r= |
| By: | Altavilla, Carlo; Barbiero, Francesca; Boucinha, Miguel; Burlon, Lorenzo |
| Abstract: | This study analyses the policy measures taken in the euro area in response to the outbreak and the escalating diffusion of new coronavirus (COVID-19) pandemic. We focus on monetary, microprudential and macroprudential policies designed specifically to support bank lending conditions. For identification, we use proprietary data on participation in central bank liquidity operations, high-frequency reactions to monetary policy announcements, and confidential supervisory information on bank capital requirements. The results show that in the absence of the funding cost relief and capital relief associated with the pandemic response measures, banks' ability to supply credit would have been severely affected. The results also indicate that the coordinated intervention by monetary and prudential authorities amplified the effects of the individual measures in supporting liquidity conditions and helping to sustain the flow of credit to the private sector. Finally, we investigate the potential real effects of the joint pandemic response measures by estimating the adjustment in labour input variables for firms that in the past have been more exposed to similar policies. We find that, in absence of monetary and prudential policies, the pandemic would lead to a significantly larger decline in firms' employment. |
| Keywords: | bank lending; COVID-19 crisis; monetary policy; Prudential policy |
| JEL: | E51 E52 E58 G01 G21 G28 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15298&r= |
| By: | Cecchetti, Stephen G; Feroli, Michael; Kashyap, Anil K; Mann, Catherine L; Schoenholtz, Kermit |
| Abstract: | In many advanced countries, lowering the policy rate to zero probably will be insufficient to counter the next conventional recession. We explore a range of new monetary policy (NMP) tools including forward guidance, balance sheet tools and negative interest rates. Reflecting the complex transmission of monetary policy, we examine each NMP's impact on financial conditions indexes (FCIs) in eight advanced economies. We find: (1) the global component of financial conditions is quite important; (2) state-contingent forward guidance is the tool most associated with improved conditions; (3) policymakers typically implemented NMPs during stress periods, and this endogenous usage pattern makes any econometric assessment difficult; (4) NMPs generally were not sufficient to overcome the headwinds already present. This leads us to conclude that, while central bankers should work to incorporate NMP tools into their reaction function, they should be humble about their likely effectiveness. |
| Keywords: | financial conditions; Financial conditions index; forward guidance; maturity extension; monetary policy; Negative Interest Rates; Quantitative easing; Stabilization Policy; Unconventional Monetary Policy |
| JEL: | E32 E52 E58 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15365&r= |
| By: | Cobus Vermeulen |
| Abstract: | This paper develops a small open-economy (SOE) dynamic stochastic general equilibrium (DSGE) model to evaluate the effect of the temporary emergency purchases of government bonds by the South African Reserve Bank (SARB) during 2020. The model is constructed in the portfolio balancing framework, in which the non-bank private sector holds a portfolio of imperfectly substitutable domestic government bonds of different maturities. This allows bond purchases by the central bank, through changing the composition of household bond portfolios, to influence the macroeconomy. The model is calibrated and simulated on South African data. Consistent with similar models of Quantitative Easing simulated for the US and the UK, the results here illustrate that bond purchases by the SARB could have a broader stimulatory macroeconomic impact, over and above the SARB’s primary objective of providing liquidity to domestic ï¬ nancial markets. This includes an expansion in the money supply, a fall in long-term government bond yields, and an increase in consumption, inflation and output. However, given the relatively small scale of the SARB’s bond purchases, the stimulus effect is modest. |
| Keywords: | open-economy DSGE, central bank asset purchases, quantitative easing, portfolio balance theory |
| JEL: | E12 E17 E44 E52 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:841&r= |
| By: | Christian Bayer; Benjamin Born; Ralph Luetticke |
| Abstract: | We provide evidence that expansionary fiscal policy lowers return differences between public debt and less liquid assets—the liquidity premium. We rationalize this finding in an estimated heterogeneous-agent New-Keynesian model with incomplete markets and portfolio choice, in which public debt affects private liquidity. This liquidity channel stabilizes fixed-capital investment. We then quantify the long-run effects of higher public debt and find little crowding out of capital, but a sizable decline of the liquidity premium, which increases the fiscal burden of debt. We show that the revenue-maximizing level of public debt is positive and has increased to 60 percent of GDP post-2010. |
| Keywords: | Business cycles, fiscal policy, HANK, incomplete markets, liquidity premium, public debt |
| JEL: | C11 D31 E21 E32 E63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_351&r= |
| By: | Alemán, Christian; Busch, Christopher; Ludwig, Alexander; Santaeulàlia-Llopis, Raül |
| Abstract: | We develop a novel empirical approach to identify the effectiveness of policies against a pandemic. The essence of our approach is the insight that epidemic dynamics are best tracked over stages, rather than over time. We use a normalization procedure that makes the pre-policy paths of the epidemic identical across regions. The procedure uncovers regional variation in the stage of the epidemic at the time of policy implementation. This variation delivers clean identification of the policy effect based on the epidemic path of a leading region that serves as a counterfactual for other regions. We apply our method to evaluate the effectiveness of the nationwide stay-home policy enacted in Spain against the Covid-19 pandemic. We find that the policy saved 15.9% of lives relative to the number of deaths that would have occurred had it not been for the policy intervention. Its effectiveness evolves with the epidemic and is larger when implemented at earlier stages. |
| Keywords: | COVID-19; identification; Macroeconomics; Pandemic; Policy Effects; Stages; Stay-Home |
| JEL: | E01 E22 E25 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15390&r= |
| By: | Forbes, Kristin; Hjortsoe, Ida; Nenova, Tsvetelina |
| Abstract: | We analyse the economic conditions (the "shocks") behind currency movements and show how that analysis can help address a range of questions, focusing on exchange rate pass-through to prices. We build on a methodology previously developed for the United Kingdom and adapt this framework so that it can be applied to a diverse sample of countries using widely available data. The paper provides three examples of how this enriched methodology can be used to provide insights on pass-through and other questions. First, it shows that exchange rate movements caused by monetary policy shocks consistently correspond to significantly higher pass-through than those caused by demand shocks in a cross-section of countries, confirming earlier results for the UK. Second, it shows that the underlying shocks (especially monetary policy shocks) are particularly important for understanding the time-series dimension of pass-through, while the standard structural variables highlighted in previous literature are most important for the cross-section dimension. Finally, the paper explores how the methodology can be used to shed light on the effects of monetary policy and the debate on "currency wars": it shows that the role of monetary policy shocks in driving the exchange rate has increased moderately since the global financial crisis in advanced economies. |
| Keywords: | Currency wars; Exchange rate; inflation; monetary policy; Pass-Through; Price level |
| JEL: | E31 E37 E52 F47 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15242&r= |
| By: | Fumitaka Nakamura (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: fumitaka.nakamura@boj.or.jp)); Nao Sudo (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan (E-mail: nao.sudou@boj.or.jp)); Yu Sugisaki (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yuu.sugisaki@boj.or.jp)) |
| Abstract: | The use of changes in short-term interest rates (STIRs) within a 30-minute window around monetary policy announcements has been increasingly adopted in empirical studies. However, variations of STIRs within such a narrow window may be too small under the effective lower bound (ELB). To address the issue, this paper constructs a measure of monetary policy shocks using STIR futures in Japan, where the policy interest rate has been close to the ELB for an exceptionally long period. We show that (i) variations within a 30-minute window are closely correlated with key financial variables while those outside the window are correlated less, suffering from noise, (ii) expansionary shocks with respect to unconventional measures have continued to lower the long-term yield, and (iii) the impulses of macroeconomic variables to the shocks agree with what conventional theory predicts overall. |
| Keywords: | Monetary policy shocks, high frequency identification, effective lower bound |
| JEL: | E32 E44 E52 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:21-e-02&r= |
| By: | Mehrotra, Neil; Sergeyev, Dmitriy |
| Abstract: | Conditions of secular stagnation-low output growth g and low interest rates r-have counteracting effects on the cost of servicing public debt, r â?? g. Using data for ad- vanced economies, we document that r is often less than g, but r â?? g exhibits substan- tial variability over the medium-term. We build a continuous-time model in which the debt-to-GDP ratio is stochastic and r |
| Keywords: | debt sustainability; government default; Low interest rates; public debt; secular stagnation |
| JEL: | E43 E62 H68 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15282&r= |
| By: | Christopher Loewald; David Faulkner; Konstantin Makrelov |
| Abstract: | The numerous diagnostic studies and policy recommendations that exist for South Africa typically focus on microeconomic constraints to growth. Higher potential growth certainly requires structural reforms to boost productivity growth, in particular to allow private competition and investment in network sectors. But these reforms and others will also be more effective if macroeconomic policy facilitates the relative price adjustments and consequential factor allocations needed to achieve higher productivity. Sustained and large fiscal deficits, higher debt, and relatively high inflation all impede those price and factor adjustments. Looking back to the global financial crisis, different policy settings in fiscal, monetary and macroprudential policies, backed by structural reforms, could have supported higher growth outcomes and provided the fiscal space to respond to the current COVID-19 crisis more effectively. |
| Keywords: | fiscal policy, policy mix, Monetary policy, South Africa |
| JEL: | E62 E63 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:842&r= |
| By: | Lucrezia Reichlin; Giovanni Ricco; Matthieu Tarbé |
| Abstract: | We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy can be analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the real discount rate declines, absorbing the increase in deficit due to the fiscal policy leaning towards the easing. Conversely, in response to an unconventional easing of the long end of the yield curve, the discount rate declines strongly, while the primary fiscal surplus barely moves. The long-run effect of unconventional monetary easing on inflation is about half than that of conventional, a result which is also consistent with the muted response of fiscal policy. Results do not point to large differences across countries. |
| Keywords: | monetary-fiscal interaction, fiscal policy, monetary policy, intertemporal government budget constraint |
| JEL: | E31 E63 E52 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:940&r= |
| By: | Attanasio, Orazio; Larkin, Kieran; Padula, Mario; Ravn, Morten O |
| Abstract: | US households' consumption and car purchases collapsed during the Great Recession for reasons that are still poorly understood. In this paper we use the Consumer Expenditure Survey to derive cohort and business cycle decompositions of consumption prfio les. When decomposing the car expenditure data into its extensive and intensive margins, we find that the intensive margin contracted sharply in the Great Recession, a fi nding in stark contrast to conventional wisdom and to the experience of prior recessions. We interpret the evidence through the prism of a very rich life-cycle model where individuals are subject to idiosyncratic uninsurable income shocks, aggregate income shocks, wealth shocks, and credit shocks. We show that, because of their salience and the transaction costs, cars are particularly sensitive to changes in the perception of future expected income and its variability. We find that on top of a large aggregate income shock, life-cycle income pro file shocks and wealth shocks are important determinants of consumption choices during the Great Recession. |
| Keywords: | Consumption; durables adjustment; the Great Recession |
| JEL: | D12 D14 E21 E32 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15361&r= |
| By: | Degorce, Victor; Monnet, Eric |
| Abstract: | Facing the Great Depression, Keynes blamed the detrimental consequences of precautionary savings on growth (paradox of thrift). Yet, the magnitude, forms and effects of savings accumulation remain unexplored in studies on the international economic crash of the 1930s. Based on new data for 22 countries, we document that the Great Depression was associated with a large international increase in savings institutions' deposits. Banking crises spurred precautionary savings. Panel estimations show a negative conditional correlation between real GDP and deposits in savings institutions when a banking crisis hit. A back-of-the-envelope calculation suggests that the negative effect of precautionary savings on growth was at least as large as the direct effect of the decline in banking activity. The evolution of the saving rate began to reverse as countries left the gold standard. |
| Keywords: | banking crises; Great Depression; paradox of thrift; precautionary savings; Savings Banks |
| JEL: | B22 E21 E51 G01 G21 N1 N2 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15287&r= |
| By: | Alan Finkelstein Shapiro; Gilbert E. Metcalf |
| Abstract: | We analyze the quantitative labor market and aggregate effects of a carbon tax in a framework with pollution externalities and equilibrium unemployment. Our model incorporates endogenous labor force participation and two margins of adjustment influenced by carbon taxes: (1) firm creation and (2) green production-technology adoption. A carbon-tax policy that reduces carbon emissions by 35 percent – roughly the emissions reductions that will be required under the Biden Administration's new commitment under the Paris Agreement – and transfers the tax revenue to households generates mild positive long-run effects on consumption and output; a marginal increase in the unemployment and labor force participation rates; and an expansion in the number and fraction of firms that use green technologies. In the short term, the adjustment to higher carbon taxes is accompanied by gradual gains in output and consumption and a negligible expansion in unemployment. Critically, abstracting from endogenous firm entry and green-technology adoption implies that the same policy has substantial adverse short- and long-term effects on labor income, consumption, and output. Our findings highlight the importance of these margins for a comprehensive assessment of the labor market and aggregate effects of carbon taxes. |
| JEL: | E20 E24 E62 H23 O33 Q52 Q54 Q55 Q58 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28795&r= |
| By: | King King Li (Shenzhen University); Bo Huang (Chinese University of Hong Kong) |
| Abstract: | We conduct an online survey experiment to investigate determinants of macroeconomic expectations. We investigate the effect of probability overweighting, religiosity, ambiguity aversion, and time preference. We find that subjects exhibiting probability overweighting, having higher degree of religiosity, having lower discount factor are more optimistic on economic growth and income, while ambiguity averse subjects are more pessimistic about the impact of Covid-19 outbreak on the economic growth rate. We compute the forecast errors and estimate the proportion of forecasts with rounding and implausible values. We find that significant proportion of subjects have rather poor understanding on macroeconomic variables. Subjects with higher degree of religiosity, living in small towns and villages, and with higher subjective socioeconomic status have higher forecast errors, while subjects with better education have lower forecast errors. Overall, we find that subjects form optimistic expectations, supporting the implication of belief-based utility (Brunnermeier and Parker, 2005) and wishful thinking (Seybert and Bloomfield, 2009) on macroeconomic expectations. |
| Keywords: | Macroeconomic Expectations; Belief-based Utility; Probability Overweighting; Ambiguity Aversion; Time Preference; Religiosity; Experiment |
| JEL: | C93 D84 E21 E31 E71 |
| Date: | 2021–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2021_015&r= |
| By: | Mercan, Yusuf; Schoefer, Benjamin; Sedlacek, Petr |
| Abstract: | In recessions, unemployment increases despite the-perhaps counterintuitive-fact that the number of unemployed workers finding jobs expands. On net, unemployment rises only because even more workers lose their jobs. We propose a theory ofunemployment fluctuations resting on this countercyclicality of gross flows from unemployment into employment. In recessions, the abundance of new hires "congests" the jobs the unemployed fill, diminishes their marginal product and discourages further job creation. Countercyclical congestion alone explains about 30â??40 percent of U.S. unemployment fluctuations. Besides generating realistic labor market volatility, it also provides a unified explanation for the cyclical labor wedge, the excess earningslosses from job displacement and from graduating during recessions, and the insensitivity of unemployment to labor market policies, such as unemployment insurance. |
| JEL: | E24 J63 J64 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15500&r= |
| By: | John C. Haltiwanger; Henry R. Hyatt; Erika McEntarfer; Matthew Staiger |
| Abstract: | Do recessions speed up or impede productivity-enhancing reallocation? To investigate this question, we use U.S. linked employer-employee data to examine how worker flows contribute to productivity growth over the business cycle. We find that in expansions high-productivity firms grow faster primarily by hiring workers away from lower-productivity firms. The rate at which job-to-job flows move workers up the productivity ladder is highly procyclical. Productivity growth slows during recessions when this job ladder collapses. In contrast, flows into nonemployment from low productivity firms disproportionately increase in recessions, which leads to an increase in productivity growth. We thus find evidence of both sullying and cleansing effects of recessions, but the timing of these effects differs. The cleansing effect dominates early in downturns but the sullying effect lingers well into the economic recovery. |
| JEL: | E24 E32 J24 J63 J64 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28802&r= |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research); Abhishek Kumar (Indira Gandhi Institute of Development Research) |
| Abstract: | We find a basic new Keynesian monetary policy DSGE model estimated for differing countries (India and the US) gives deep parameter estimates, impulse responses and forecast error variance decompositions for each in line with theory and country structure, implying similar functional forms can be estimated for different countries with estimated coefficients capturing differences in structure. Features that create excess volatility, especially in emerging markets, explain differences in policy shocks. The feature explored in this paper is external terms of trade. When this is dampened in the emerging market, using policy tools other than the policy rate, the aggregate supply curve, which was relatively steeper, becomes flatter. As a result, volatility of interest rates and their impact on output and inflation, which was relatively higher in India, becomes lower than in the US. Asymmetries between the countries are reversed. The estimated coefficient of the terms of trade is relatively higher in the US Taylor rule. It follows emerging market central banks need policy tools in addition to interest rates to affect volatility creating variables like external terms of trade. |
| Keywords: | DSGE, India, US, Asymmetry, Open economy model, Terms of trade, Aggregate supply curve |
| JEL: | E32 F41 F44 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2021-010&r= |
| By: | Feld, Lars P; Wieland, Volker |
| Abstract: | The ruling of the German Federal Constitutional Court and its call for conducting and communicating proportionality assessments regarding monetary policy have been the subject of some controversy. However, it can also be understood as a way to strengthen the de-facto independence of the European Central Bank. This paper shows how a regular proportionality check could be integrated in the ECB's strategy that is currently undergoing a systematic review. In particular, it proposes to include quantitative benchmarks for policy rates and the central bank balance sheet. Deviations from such benchmarks can have benefits in terms of the intended path for inflation while involving costs in terms of risks and side effects that need to be balanced. Practical applications to the euro area are provided. |
| Keywords: | central bank independence; Monetary institutions; monetary law; Monetary policy strategy; Policy Rules; Proportionality; Quantitative easing |
| JEL: | E52 E58 K10 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15320&r= |
| By: | Hyunduk Suh (Inha University); Jin Young Yang (Zayed University) |
| Abstract: | We empirically investigate the effect of financial institution-targeted macroprudential policies on firms, using a comprehensive macroprudential policy dataset and corporate panel data across 29 countries. We find that the tightening of macroprudential measures persistently curbs the leverage growth of firms, while there is no indication that the loosening of the measures is related to the increase in leverage growth. We also find that this effect on leverage is heterogeneous across firms, as net macroprudential policy actions reduce the procyclicality of leverage more significantly for small firms and firms with high leverage. Also, we estimate the effect of macroprudential policies on firm value to evaluate potential policy trade-offs as the policies restrict the firms' access to credit during economic booms while protecting them from future financial crises. The effect of macroprudential policies on firm value is generally positive despite the policies' restrictive nature. Further, the effect on firm value is heterogeneous depending on firm characteristics: the positive effect becomes stronger as firms are less leveraged; but this positive effect is weaker for firms that grow faster, suggesting potential costs of macroprudential policies for these firms. |
| Keywords: | Macroprudential policy, Firm heterogeneity, Leverage, Tobin’s Q |
| JEL: | E51 E58 G18 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:inh:wpaper:2021-3&r= |
| By: | Bruno Pellegrino; Enrico Spolaore; Romain Wacziarg |
| Abstract: | We quantify the impact of barriers to international investment, using a novel multi-country dynamic general equilibrium model with heterogeneous investors and imperfect capital mobility. Our model yields a gravity equation for bilateral foreign asset positions. We estimate this gravity equation using recently developed foreign investment data that have been restated to account for offshore investment and financing vehicles. We show that a parsimonious implementation of the model with four barriers (geographic distance, cultural distance, foreign investment taxation, and political risk) accounts for a large share of the observed variation in bilateral foreign investment positions. Our model predicts (out of sample) a significant home bias, higher rates of return on capital in emerging markets, as well as “upstream” capital flows. In our benchmark calibration, we estimate that the capital misallocation induced by these barriers reduces World GDP by 7%, compared to a situation without barriers. We also find that barriers to global capital allocation contribute significantly to cross-country inequality: the standard deviation of log capital per employee is 80% higher than it would be in a world without barriers to international investment, while the dispersion in output per employee is 42% higher. |
| Keywords: | capital allocation, capital flows, foreign investment, culture, geography, gravity, international macroeconomics, international finance, misallocation, open economy |
| JEL: | E22 E44 F20 F30 F40 G15 O40 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9086&r= |
| By: | Auer, Raphael; Cornelli, Giulio; Frost, Jon |
| Abstract: | Central bank digital currencies (CBDCs) are receiving more attention than ever before. Yet the motivations for issuance vary across countries, as do the policy approaches and technical designs. We investigate the economic and institutional drivers of CBDC development and take stock of design efforts. We set out a comprehensive database of technical approaches and policy stances on issuance, relying on central bank speeches and technical reports. Most projects are found in digitised economies with a high capacity for innovation. Work on retail CBDCs is more advanced where the informal economy is larger. We next take stock of the technical design options. More and more central banks are considering retail CBDC architectures in which the CBDC is a direct cash-like claim on the central bank, but where the private sector handles all customer-facing activity. We conclude with an in-depth description of three distinct CBDC approaches by the central banks of China, Sweden and Canada. |
| Keywords: | CBDC; Central bank digital currency; central banks; digital currency; distributed ledger technology; international payments; monetary policy; Payments; technology |
| JEL: | E42 E44 E51 F31 G21 G28 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15363&r= |
| By: | Tumisang Loate; Nicola Viegi |
| Abstract: | We study the credit channel of monetary policy in South Africa between 2002 and 2019 using banks’ balance sheets. We show that there is a signiï¬ cant heterogeneity within the banking sector in both the loan and deposit sides of the banks’ balance sheets. In response to a contractionary monetary policy shock, big banks adjust their loan portfolio by lending to businesses and reducing lending to households whereas for small banks we ï¬ nd the opposite. The increase in corporate lending amid declining inventories is consistent with the hypothesis of “hedging and safeguarding the capital adequacy ratio†rather than funding business inventories. This paper highlights the importance of heterogeneity in customers, market power and business models in the banking sector, which characterises the socio-demographics dynamics in South Africa. |
| Keywords: | Credit channel, banks balance sheets, unconventional monetary policy |
| JEL: | E32 E52 G21 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:849&r= |
| By: | Peydró, José Luis; Rodriguez Tous, Francesc; Tripathy, Jagdish; Uluc, Arzu |
| Abstract: | Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders-not households-for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (e.g. increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies-via lower pre-correction debt-better house prices and mortgage defaults during an episode of house price correction. |
| Keywords: | Credit cycles; House Prices; inequality; macroprudential policy; Mortgages |
| JEL: | E5 G01 G21 G28 G51 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15275&r= |
| By: | Matteo Maggiori |
| Abstract: | In the last 15 years, central banks have purchased securities at unprecedented levels via quantitative easing and foreign exchange intervention. These policies have constituted the core response to crises such as the 2008–09 Great Financial Crisis, the 2011–12 European sovereign debt crisis and the ongoing Covid-19 pandemic. In many cases, policymakers have resorted to these policies as traditional monetary policy was constrained by the zero lower bound. In this paper, I review recent advances in open economy analysis with financial frictions. This type of analysis offers a different take on exchange rates compared with their traditional role as shock absorbers. When international financial intermediation is imperfect, the exchange rate is pinned down by imbalances in the demand and supply of assets in different currencies and, crucially, by the limited risk-bearing capacity of the financial intermediaries that absorb these imbalances. Exchange rates are distorted by financial forces and can be a source of shocks to the real economy rather than a re-equilibrating mechanism. |
| JEL: | E44 F31 F32 F41 G15 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:942&r= |
| By: | Fabo, Brian; Jancokova, Martina; Kempf, Elisabeth; Pástor, Lubos |
| Abstract: | Central banks sometimes evaluate their own policies. To assess the inherent conflict of interest, we compare the research findings of central bank researchers and academic economists regarding the macroeconomic effects of quantitative easing (QE). We find that central bank papers report larger effects of QE on output and inflation. Central bankers are also more likely to report significant effects of QE on output and to use more positive language in the abstract. Central bankers who report larger QE effects on output experience more favorable career outcomes. A survey of central banks reveals substantial involvement of bank management in research production. |
| Keywords: | career concerns; central bank; Conflict Of Interest; QE; Quantitative easing |
| JEL: | A11 E52 E58 G28 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15449&r= |
| By: | Bedayo, Mikel; Jiménez, Gabriel; Peydró, José Luis; Vegas, Raquel |
| Abstract: | We show that loan origination time is key for bank lending standards, cycles, defaults and failures. We exploit the credit register from Spain, with the time of a loan application and its granting. When VIX is lower (booms), banks shorten loan origination time, especially to riskier firms. Bank incentives (capital and competition), capacity constraints, and borrower-lender information asymmetries are key mechanisms driving results. Moreover, shorter (loan-level) origination time is associated with higher ex-post defaults, also using variation from holidays. Finally, shorter precrisis origination time -more than other lending conditions- is associated with more bank-level failures in crises, consistent with lower screening. |
| Keywords: | bank failures; Credit cycles; Defaults; Lending standards; loan origination time; screening |
| JEL: | E44 E51 G01 G21 G28 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15445&r= |
| By: | Ricardo Reis |
| Abstract: | With real interest rates below the growth rate of the economy, but the marginal product of capital above it, the public debt can be lower than the present value of primary surpluses because of a bubble premia on the debt. The government can run a deficit forever. In a model that endogenizes the bubble premium as arising from the safety and liquidity of public debt, more government spending requires a larger bubble premium, but because people want to hold less debt, there is an upper limit on spending. Inflation reduces the fiscal space, financial repression increases it, and redistribution of wealth or income taxation have an unconventional effect on fiscal capacity through the bubble premium. |
| Keywords: | debt limits, debt sustainability, incomplete markets, misallocation |
| JEL: | D52 E62 G10 H63 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:939&r= |
| By: | Canova, Fabio; Ferroni, Filippo |
| Abstract: | This paper describes a package which uses MATLAB functions and routines to estimate VARs, local projections and other models with classical or Bayesian methods. The toolbox allows a researcher to conduct inference under various prior assumptions on the parameters, to produce point and density forecasts, and to trace out the causal effect of shocks using a number of identification schemes. The toolbox is equipped to handle missing observations, mixed frequencies and time series with large cross-section information (e.g. panels of VAR and FAVAR). It also contains a number of routines to extract cyclical information and to date business cycles. We describe the methodology employed and implementation of the functions with a number of practical examples. |
| Keywords: | Bayesian inference; Filters and Cycles; Forecasts; identification; local projections; Matlab; Missing values; VARs |
| JEL: | C10 E32 E52 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15446&r= |
| By: | Davide Cipullo; André Reslow |
| Abstract: | This paper documents the existence of Political Forecast Cycles. In a theoretical model of political selection, we show that governments release overly optimistic GDP growth forecasts ahead of elections to increase the reelection probability. The bias arises from lack of commitment if voters are rational and from manipulation of voters’ beliefs if they do not expect the incumbent to be biased. Using high-frequency forecaster-level data from the United States, the United Kingdom, and Sweden, we document that governments overestimate short-term GDP growth by 10 to 13 percent during campaign periods. |
| Keywords: | electoral cycles, political selection, voting, macroeconomic forecasting |
| JEL: | D72 D82 E37 H68 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9088&r= |
| By: | Alessandro Bellocchi (Department of Economics, Society & Politics, Università di Urbino Carlo Bo); Giovanni Marin (Department of Economics, Society & Politics, Università di Urbino Carlo Bo); Giuseppe Travaglini (Department of Economics, Society & Politics, Università di Urbino Carlo Bo) |
| Abstract: | The worldwide fall of labor shares in recent decades is well documented, but its underlying sources remain still unclear. Most of the recent empirical analysis rely on industry or aggregate macro data, downplaying the importance of heterogeneity among firms. In this paper we analyze micro panel data from Amadeus and seek to understand the dynamics of labor share in 19 sectors of the EU28. In our model firms are heterogeneous in capital stock, market power and technology. Labor share’s changes turn out to be driven by the complex interplay among these factors. We show that its slowdown in recent years reflects changes in capital deepening, technology progress and capital-labor substitution. Although institutional factors play a significant role in specific industries, they appear to be less relevant, than is usually believed, for the aggregate economy. Specifically, non-linear terms for the capital-output ratio make the effect of capital accumulation on the labor share no longer trivial, explaining the observed heterogeneous behavior within industries. |
| Keywords: | Labor Shares, Capital-Output ratios, Elasticity of Substitution, Technological Change, Markups |
| JEL: | E24 E25 C33 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:21_02&r= |
| By: | Lars E.O. Svensson |
| Abstract: | The “debt-overhang hypothesis” – that households cut back more on their spending in a crisis when they have higher levels of outstanding mortgage debt (Dynan, 2012) – seems to be taken for granted by macroprudential authorities in several countries in their policy decisions, as well as by the international organizations that evaluate and comment on countries’ macroprudential policy. Results are presented for UK microdata that reject the debt-overhang hypothesis. The results instead support the “spending-normalization hypothesis” of Andersen, Duus, and Jensen (2016a), what can also be called the “debt-financed overspending” hypothesis – that the correlation between high pre-crisis household indebtedness and subsequent spending cuts during the crisis reflects high debt-financed spending pre-crisis and a return to normal spending during the crisis. As discussed in Svensson (2019, 2020), this is consistent with the correlation reflecting debt-financed overspending through what Muellbauer (2012) calls the “housing-collateral household demand” and Mian and Sufi (2018) the “debt-driven household demand” channel. The correlation is thus spurious and an example of omitted-variable bias. A simple model shows that consumption and debt changes are directly and strongly positively correlated, whereas consumption and debt levels are quite weakly negatively correlated. Importantly, and in contrast, examples show that there is no systematic relation between consumption cuts and levels of or changes in LTV ratios. The lack of a robust relation between consumption cuts and levels of or changes in LTV ratios implies that tests of these hypotheses should generally not be done by regressions of consumption cuts on levels of or changes in LTV ratios. |
| JEL: | E21 G01 G18 G21 R21 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28806&r= |
| By: | Angeletos, George-Marios; Collard, Fabrice; Dellas, Harris |
| Abstract: | We study optimal policy in an economy in which public debt is used as collateral or liquidity buffer. Issuing more public debt raises welfare by easing the underlying financial friction; but this easing lowers the liquidity premium and increases the government's cost of borrowing. These considerations, which are absent in the basic Ramsey paradigm, help pin down a unique, long-run level of public debt. They require a front-loaded tax response to government-spending shocks, instead of tax smoothing. And they explain why a financial recession, more than a traditional one, makes government borrowing cheaper, optimally supporting larger fiscal stimuli. |
| Keywords: | optimal policy; piblic debt; private liquidity |
| JEL: | E62 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15488&r= |
| By: | Monnet, Eric; Puy, Damien |
| Abstract: | We assess the importance of individual and institutional experience in shaping macroeconomic policy by studying the persistence of gold standard monetary practices in the Bretton Woods system. Using new historical data from the IMF, we show that, although they were not required to, countries continued to back currency in circulation with gold. The longer an institution had spent in the gold standard before 1944 (and the older the policymakers), the tighter the link between gold and currency during Bretton Woods. Such "old habits" prevented dollars and gold from working as perfect substitutes and ultimately contributed to the demise of the Bretton Woods system. Our findings highlight the persistence of past practices, even in the face of radical institutional change, and its consequences on the international monetary system. |
| Keywords: | Bretton Woods; central banking; culture & beliefs; Foreign reserves; gold; international monetary system |
| JEL: | D83 E52 F33 M1 N10 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15286&r= |
| By: | Johannes W. Fedderke |
| Abstract: | The yield spread of South African to United States 10 year government bonds over the last 5 years has increased substantially to levels approaching those last seen during the mid-1980s. This yield spread increase is replicated in spreads relative to long-term German bonds, as well as for the spread of state owned enterprises (ESKOM) to United States and German bonds. This paper examines the association between the spread and macroeconomic fundamentals over the 1960-2019 sample period, under the GARCH and GARCH-M class of estimators. We find that higher South African economic growth, lower inflation, public and private debt, as well as Rand-Dollar appreciation are all associated with a statistically significantly lower South African - United States yield spread. The strongest impact is associated with the public debt-to-GDP ratio. Mean spread levels do not appear to be influenced by yield volatility. Finally, while there is no evidence of sign bias in the impact of shocks on yield volatility (negative shock impacts are no di¤erent than positive), there is evidence of size bias for both positive and negative shocks: larger shocks have a larger impact on volatility than small, regardless of their sign. Collectively, and even ignoring the impact of private sector leveraging, South Africa’s performance in these macroeconomic fundamentals is associated with an increase in the SA-US yield spread of 363 basis points (since 2012). This constitutes a substantial proportion of the current 741 basis point spread. |
| Keywords: | sovereign bond spreads, macoreconomic fundamentals, South Africa |
| JEL: | E4 E5 E6 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:830&r= |
| By: | Hadzi-Vaskov, Metodij; Ricci, Luca Antonio |
| Abstract: | This study investigates the relationship between public debt and sovereign credit ratings, using a wide sample of over 100 advanced, emerging, and developing economies. It finds that: i) higher public debt lowers the probability of being placed in a higher rating category; ii) the negative debt-ratings relationship is nonlinear and depends on the rating grade itself; and iii) the identified nonlinearity explains the differential impact of debt on ratings in advanced economies versus emerging and developing economies (previously suggested in the literature as different relationships). These results hold for both gross and net debt, and are robust to alternative dependent variable definitions, analytical techniques, and empirical specifications. |
| Keywords: | Advanced economies; Credit rating agencies; Credit ratings; emerging markets; financial markets; non-linearities; public debt |
| JEL: | E44 E62 G15 G24 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15267&r= |
| By: | Gries, Thomas (University of Paderborn); Naudé, Wim (University College Cork) |
| Abstract: | In "The Race between Man and Machine: Implications of Technology for Growth, Factor Shares, and Employment," Acemoglu and Restrepo (2018b) combine the task-based model of the labor market with an endogenous growth model to model the economic consequences of artificial intelligence (AI). This paper provides an alternative endogenous growth model that addresses two shortcomings of their model. First, we replace the assumption of a representative household with the premise of two groups of households with different preferences. This allows our model to be demand constrained and able to model the consequences of higher income inequality due to AI. Second, we model AI as providing abilities, arguing that "abilities" better characterises the nature of the services that AI provide, rather than tasks or skills. The dynamics of the model regarding the impact of AI on jobs, inequality, wages, labor productivity and long-run GDP growth are explored. |
| Keywords: | technology, artificial intelligence, productivity, labor demand, income distribution, growth theory |
| JEL: | O47 O33 J24 E21 E25 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14341&r= |
| By: | Coibion, Olivier; Gorodnichenko, Yuriy; Knotek, Edward; Schoenle, Raphael |
| Abstract: | Using a daily survey of U.S. households, we study how the Federal Reserve's announcement of its new strategy of average inflation targeting affected households' expectations. Starting with the day of the announcement, there is a very small uptick in the minority of households reporting that they had heard news about monetary policy relative to prior to the announcement, but this effect fades within a few days. Those hearing news about the announcement do not seem to have understood the announcement: they are no more likely to correctly identify the Fed's new strategy than others, nor are their expectations different. When we provide randomly selected households with pertinent information about average inflation targeting, their expectations still do not change in a different way than when households are provided with information about traditional inflation targeting. |
| Keywords: | communication; Inflation expectations; Inflation targeting; randomized controlled trial; Surveys |
| JEL: | E3 E4 E5 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15307&r= |
| By: | Tsoulfidis, Lefteris; Tsaliki, Persefoni |
| Abstract: | In this article, we argue the rate of profit in combination with the movement of the real net profits determines the phase-change of the economy in its long cyclical pattern. Since WWII, the US and the world economy have experienced two such long cycles. The pandemic COVID-19 has deepened a recession that has been already underway since 2007. The growth rates in the first post-pandemic years are expected to be high; however, soon after, the economies will find themselves back to their old recessionary growth paths. The onset of a new long cycle requires the restoration of profitability, which can be sustained only through the introduction of ‘disruptive’ innovations backed by suitable institutional arrangements. |
| Keywords: | Long recession, secular stagnation, pandemic, long cycles, institutional changes, disruptive innovations |
| JEL: | B0 B5 E32 N10 O3 |
| Date: | 2021–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107646&r= |
| By: | Pellegrino, Giovanni; Ravenna, Federico; Züllig, Gabriel |
| Abstract: | We estimate a monthly Interacted-VAR model for Euro area macroeconomic aggregates allowing for the impact of uncertainty shocks to depend on the average outlook of the economy measured by survey data. We find that, in response to an uncertainty shock, the peak decrease in industrial production and inflation is around three and a half times larger during pessimistic times. We build scenarios for a path of innovations consistent with the increase in the observed VSTOXX measure of uncertainty at the outset of the COVID-19 epidemics in February and March 2020. Industrial production is predicted to experience a year-over-year peak loss of between 15.1% and 19% in the fourth quarter of 2020, and subsequently to recover with a rebound to pre-crisis levels between May and August 2021. The large impact is the result of an extreme shock to uncertainty occurring at a time of very negative expectations on the economic outlook. |
| Keywords: | Consumer confidence; COVID-19; Non-Linear Structural Vector AutoRegressions; Uncertainty shocks |
| JEL: | C32 E32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15321&r= |
| By: | Jiménez, Gabriel; Kenan, Huremovic; Moral-Benito, Enrique; Peydró, José Luis; Vega-Redondo, Fernando |
| Abstract: | We show that bank shocks originating in the financial sector propagate upstream and downstream along the production network and triple the impact of direct bank shocks. Our identification relies on the universe of both supplier-customer transactions and bank loans in Spain, a standard operationalization of credit-supply shocks during the 2008-09 global crisis, and the proposed theoretical framework. The impact on real effects is strong, and similarly so, when considering: (i) direct bank shocks to firms versus first-order interim contagion; (ii) first-order versus higher-order network effects; (iii) downstream versus upstream propagation; (iv) firm-specific versus economy-wide shocks. Market concentration amplifies these effects. |
| Keywords: | credit supply; networks; real effects of finance; shock propagation; Supply Chains |
| JEL: | D85 E44 E51 G01 G21 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15277&r= |
| By: | Dzung Bui (Philipps University Marburg); Lena Draeger (Leibniz University of Hannover); Bernd Hayo (Philipps University Marburg); Giang NghiemŸ (Leibniz University of Hannover) |
| Abstract: | In response to the economic crisis created by the COVID-19 pandemic, many governments provided financial assistance to households. Using representative consumer surveys conducted during the pandemic in 2020, we examine the effects of this fiscal policy instrument on households in two emerging economies, Vietnam and Thailand. Our paper contributes to the literature by studying consumer sentiment and durable spending responses to government financial support and the underlying transmission channels for these responses. We find that government support improves consumer sentiment and increases the likelihood of durable spending. Possible channels for these effects include more optimistic macroeconomic expectations and higher trust in the government's ability to deal with the pandemic, as well as less concern about the general impact of the crisis. We also find that financial support improves individuals' mental health and life satisfaction. Our results suggest that government financial support not only helps stimulate the economy but also enhances people's well-being more generally. |
| Keywords: | Fiscal policy; Financial support of households; Consumer sentiment; Durables spending; Expectations; Government trust; COVID-19; Thailand; Vietnam. |
| JEL: | E62 E71 D12 D83 H31 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202120&r= |
| By: | Alok Johri (McMaster University); Shahed Khan (University of Western Ontario); César Sosa-Padilla (University of Notre Dame/NBER) |
| Abstract: | International data suggests that fluctuations in the level and volatility of the world interest rate (as measured by the US treasury bill rate) are positively correlated with both the level and volatility of sovereign spreads in emerging economies. We incor- porate an estimated time-varying process for the world interest rate into a model of sovereign default calibrated to a panel of emerging economies. Time variation in the world interest rate interacts with default incentives in the model and leads to state con- tingent effects on borrowing and sovereign spreads which resemble those found in the data. The model delivers up to one-half of the positive comovement between the level and volatility of world interest rate and the level of sovereign spreads seen in emerg- ing economies. Moreover, the model also delivers significant positive co-movements between the volatility of the spread and the process for the world interest rate which is also consistent with the data. Our model provides one potential source for the observed bunching in default probabilities observed across nations, namely the world interest rate process. Our model generates a positive and significant correlation (0.51) between the spreads of two nations with uncorrelated income processes. This is close to the observed mean correlation in the data (0.61). |
| Keywords: | Sovereign Debt Sovereign Default Interest Rate Spread Time-varying Volatility Uncertainty Shocks |
| JEL: | F34 F41 E43 E32 |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:31&r= |
| By: | Ryuichiro Izumi (Department of Economics, Wesleyan University); Yang Li (Nankai University) |
| Abstract: | Do policies that aim to mitigate firre sale externalities improve financial stability? We study this question in a model of financial intermediation where banks may sell long-term assets in financial markets subject to cash-in-the-market pricing and bank runs. In the absence of interventions, banks hold more long-term assets than is socially optimal, leading to ineciently large fire sales in a crisis. Regulating banks' short-term liabilities and portfolio choices can mitigate this externality. We show, however, that in economies with high market liquidity, such interventions actually increase financial fragility. In such a case, policymakers must balance the desire to mitigate the externality with financial stability considerations. |
| Keywords: | Fire sale, Pecuniary externalities, Macroprudential policies, Financial fragility |
| JEL: | G21 G28 E44 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:wes:weswpa:2021-002&r= |
| By: | Bonfatti, Roberto; Brzezinski, Adam; Karaman, Kivanç; Palma, Nuno Pedro G. |
| Abstract: | Monetary capacity refers to a state's capacity to circulate money that is accepted by the public, whereas fiscal capacity refers to its capacity to tax. In this paper, we show both theoretically and empirically that monetary and fiscal capacity, and by extension, markets and states have a symbiotic relationship. On the theoretical front, we propose a model that establishes that a higher monetary capacity incentivizes the government to invest in the capacity to tax, because monetization eases taxation. Higher fiscal capacity, in turn, increases the public demand for money, because expected inflation is lower. On the empirical front, we find that monetary capacity had a significant and substantial causal impact on fiscal capacity. To identify this impact, we rely on a natural experiment, instrumenting the money stocks of England, France and Spain between 1550 and 1790 by the silver and gold output in the New World. Finally, to put our findings into a long-run perspective, we collect money stock and tax revenue data for European states from antiquity to the modern period, and document the close relationship between the two. These findings indicate that economic and political development cannot be understood independently. They also qualify the theory of the long-run neutrality of money: exogenous changes in money stock can and did have real long-run effects. |
| Keywords: | fiscal capacity; inflation; monetary capacity; monetary non-neutrality; monetization; Quantity Theory of Money; taxation |
| JEL: | E50 E60 H21 N10 O11 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15299&r= |
| By: | Egle Jakucionyte (Bank of Lithuania, Vilnius University); Sweder van Wijnbergen (Tinbergen Institute, CEPR, University of Amsterdam) |
| Abstract: | This paper analyzes the macroeconomic consequences of foreign currency losses by banks, corporates and consumers in order to find whether some allocations of losses are better from a macroeconomic perspective than others. To that end, we construct a New Keynesian DSGE model with debt overhang for corporate borrowers, monitoring costs for household mortgage debt and leverage constraints for banks. The Hungarian experience at the end of 2008 and model estimation on Hungarian data motivate these financial frictions. Model simulation shows that making corporate borrowers bear currency risk results in worse macroeconomic outcomes than shifting currency mismatch losses to banks. Foreign currency mortgages to households, however, generate lower output than currency mismatch in the banking sector. The fact that households do not suffer from debt overhang, among other reasons, is driving this result. |
| Keywords: | Currency mismatch, household debt, corporate debt, leveraged banks, small open economy, Bayesian estimation |
| JEL: | E44 G21 F41 P2 |
| Date: | 2020–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:89&r= |
| By: | Tim Olds; Daan Steenkamp |
| Abstract: | We develop a new dataset of bank-level balance sheets data to estimate bank-level funding costs. These estimates are useful for monitoring of funding pressures and other risks to the banking sector as well as understanding the impact of prudential regulations and market conditions on the transmission of monetary policy. We show that bank funding cost spreads are materially higher now than before the Global Financial Crisis of 2008, in spite of lower interest rates. During the Covid-19 crisis, we show that aggregate funding costs have fallen in level (i.e. percentage) terms, but that funding costs have increased when expressed relative to reference rates. We show that the relative cost of raising deposits has increased, as deposit rates have not fallen by as much as the repurchase rate and other money market rates. |
| Keywords: | bank funding costs, composition of funding, financial market conditions |
| JEL: | E40 E44 G21 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:857&r= |
| By: | Markus Brunnermeier; Harold James; Jean-Pierre Landau |
| Abstract: | The ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange. We may see an unbundling of the separate roles of money, creating fiercer competition among specialized currencies. On the other hand, digital currencies associated with large platform ecosystems may lead to a re-bundling of money in which payment services are packaged with an array of data services, encouraging differentiation but discouraging interoperability between platforms. Digital currencies may also cause an upheaval of the international monetary system: countries that are socially or digitally integrated with their neighbors may face digital dollarization, and the prevalence of systemically important platforms could lead to the emergence of digital currency areas that transcend national borders. Central bank digital currency (CBDC) ensures that public money remains a relevant unit of account. |
| Keywords: | digital money, digital currency area, digital dollarization, currency competition |
| JEL: | E42 E52 F33 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:941&r= |
| By: | Christelis, Dimitris; Ehrmann, Michael; Georgarakos, Dimitris |
| Abstract: | Household debt in the United States has played a central role in the up-run and the aftermath of the global financial crisis. Despite this, our understanding of household debt and potential debt overhang is still limited. To shed light on this issue, we put U.S. household leverage in an international perspective, using household-level data for the United States and ten euro area economies. U.S. households have the highest prevalence of collateralized and non-collateralized debt, hold comparatively large amounts of loans, and face a higher debt-service burden, even though they have higher income and financial wealth. These differences are mainly related to the U.S. economic environment, which appears to be more conducive to both types of debt, primarily because a given level of collateral is associated with higher prevalence of collateralized debt, and larger amounts of it, in the United States. |
| Keywords: | counterfactual decompositions; debt burden; Household Debt; household finance |
| JEL: | D12 E21 G11 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15368&r= |
| By: | Lenza, Michele; Primiceri, Giorgio E |
| Abstract: | This paper illustrates how to handle a sequence of extreme observations---such as those recorded during the COVID-19 pandemic---when estimating a Vector Autoregression, which is the most popular time-series model in macroeconomics. Our results show that the ad-hoc strategy of dropping these observations may be acceptable for the purpose of parameter estimation. However, disregarding these recent data is inappropriate for forecasting the future evolution of the economy, because it vastly underestimates uncertainty. |
| Keywords: | COVID-19; Density forecasts; Outliers; volatility |
| JEL: | C11 C32 E32 E37 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15245&r= |
| By: | Benjamin Born; Francesco D’Ascanio; Gernot J. Müller; Johannes Pfeifer; Johannes Pfeiffer |
| Abstract: | In economies with fixed exchange rates, the adjustment to government spending shocks is asymmetric. A fiscal expansion appreciates the real exchange rate but does not stimulate output. A fiscal contraction does not alter the exchange rate, but lowers output. We develop these insights in a two-sector model of a small open economy with downward nominal wage rigidity. We establish new empirical evidence that supports he predictions of the model along several dimensions: not only does the exchange rate regime shape the fiscal transmission mechanism as predicted by the model – in doing so it also interacts with economic slack and inflation. |
| Keywords: | Downward nominal wage rigidity, government spending shocks, exchangerate peg, real exchange rate, nonlinear effects, asymmetric adjustment, depreciation bias |
| JEL: | E62 F41 F44 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ifowps:_352&r= |
| By: | Burstein, Ariel Tomas; Carvalho, Vasco M; Grassi, Basile |
| Abstract: | We study markup cyclicality in a granular macroeconomic model with oligopolistic competition. We characterize the comovement of firm, sectoral, and economy-wide markups with sectoral and aggregate output following firm-level shocks. We then quantify the model's ability to reproduce salient features of the cyclical properties of markups in French administrative firm-level data, from the bottom (firm) level to the aggregate level. Our model helps rationalize various, seemingly conflicting, measures of markup cyclicality in the French data. |
| Keywords: | Aggregate fluctuations; Firm Dynamics; granularity; Markup Cyclicality; Oligopolistic Competition |
| JEL: | D21 D22 D24 D43 E32 L11 L13 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15360&r= |
| By: | Agur, Itai; Ari, Anil; DellAriccia, Giovanni |
| Abstract: | We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC, and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of a payment instrument depend on the number of its users. A CBDC can be designed with attributes similar to cash or deposits, and can be interest bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades of bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank's tradeoffs. |
| Keywords: | CBDC; digital currency; Financial Intermediation; Fintech; network effects |
| JEL: | E41 E58 G21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15366&r= |
| By: | Ran Spiegler |
| Abstract: | I study a static textbook model of monetary policy and relax the conventional assumption that the private sector has rational expectations. Instead, the private sector forms inflation forecasts according to a misspecified subjective model that disagrees with the central bank's (true) model over the causal underpinnings of the Phillips Curve. Following the AI/Statistics literature on Bayesian Networks, I represent the private sector's model by a direct acyclic graph (DAG). I show that when the private sector's model reverses the direction of causality between inflation and output, the central bank's optimal policy can exhibit an attenuation effect that is sensitive to the noisiness of the true inflation-output equations. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.08988&r= |
| By: | Aum, Sangmin; Lee, Sang Yoon (Tim); Shin, Yongseok |
| Abstract: | Shutting down the workplace is an effective means of reducing contagion, but can incur large economic losses. We construct an exposure index, which measures infection risks across occupations, and a work-from-home index, which gauges the ease with which a job can be performed remotely across both industries and occupations. Because the two indices are negatively correlated but distinct, the economic costs of containing a pandemic can be minimized by only sending home those jobs that are highly exposed but easy to perform from home. Compared to a lockdown of all non-essential jobs, the optimal policy attains the same reduction in aggregate exposure (32 percent) with one-third fewer workers sent home (24 vs. 36 percent) and with only half the loss in aggregate wages (15 vs. 30 percent). A move from the lockdown to the optimal policy reduces the exposure of low-wage workers the most and the wage loss of the high-wage workers the most, although everyone's wage losses become smaller. A constrained optimal policy under which health workers cannot be sent home still achieves the same exposure reduction with a one-third smaller loss in aggregate wages (19 vs. 30 percent). |
| Keywords: | exposure; lockdown; Pandemic; work from home |
| JEL: | E24 I14 J21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15332&r= |
| By: | Prados de la Escosura, Leandro |
| Abstract: | The rising trend in the capital-output ratio and the productivity slowdown have put capital back in the economist's agenda. This paper contributes to the debate by providing new estimates of net capital stock and services for Spain over the last 170 years. The net capital (wealth) stock-GDP ratio rose over time and doubled in the last half-a-century. Capital services grew fast over the long-run accelerating in the 1920s and from the mid-1950s to 2007. Until 1975 its acceleration was helped by an increase in the 'quality' of capital. Capital deepening proceeded steadily, accelerating during 1955-1985, and slowing down thereafter for expanding sectors attracted less investment-specific technological progress. Although capital consumption rose over time, the rate of depreciation fell from 1970 to 2007 as new capital goods' relative prices declined due to embodied technological change. |
| Keywords: | Capital Deepening; Capital Stock and Services; Capital-output ratio; Spain |
| JEL: | D24 E01 E22 N33 N34 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15364&r= |
| By: | Amin Sokhanvar (Graduate School of Economics and Management, Ural Federal University, Yekaterinburg, Russia); Glenn P. Jenkins (Department of Economics, Queen's University, Kingston, Ontario K7L) |
| Abstract: | International tourism and FDI inflows have generated detectable beneficial impacts on the economy of Estonia in the last decades. However, recently, poor international market conditions mostly caused by the trade war and COVID-19 pandemic have been a potential threat to these two factors. Besides, the poor performance of investments in recent years is behind the stagnation of productivity in Estonia. This study examines the dynamics of the effects of these factors on the rate of economic growth in Estonia and provides policy implications in line with sustained recovery. A Nonlinear ARDL technique is employed in this study to investigate the long-run effects of FDI and the degree of tourism specialization on economic growth rate. Our findings indicate that the economic growth rate of Estonia in the long-run has been positively affected by both the rate of FDI inflows and international tourism. This is the first study that employs a non-linear approach to investigate the dynamics of long-run effects of FDI and tourism specialization on the rate of economic growth in Estonia and provides policy implications in line with optimal growth strategy considering the economic structure, the current level of productivity, and available potentials in this economy. |
| Keywords: | International Tourism; FDI; Rate of Return on Investment; Productivity; Economic |
| JEL: | O11 O49 E22 E27 Z32 |
| Date: | 2021–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:4575&r= |
| By: | Canova, Fabio |
| Abstract: | I examine the properties of cross sectional estimates of multipliers, elasticities, or pass-throughs when the data is generated by a conventional multi-unit time series specification. A number of important biases plague estimates; the most relevant one occurs when the cross section is not dynamic homogenous. I suggest methods that can deal with this problem and show the magnitude of the biases cross sectional estimators display in an experimental setting. I contrast average time series and average cross sectional estimates of local fiscal multipliers for US states. |
| Keywords: | Cross sectional methods; dynamic heterogeneity; fiscal multipliers; Monetary pass-through; partial pooling |
| JEL: | E0 H6 H7 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15330&r= |
| By: | Joe Cho Yiu Ng (City University of Hong Kong) |
| Abstract: | This paper studies whether the relationships between housing prices and macroeconomic variables have changed after the 2008 Global Financial Criss (GFC). I re‐examine the business cycle correlations in 22 Organization for Economic Co‐ operation and Development (OECD) member countries. In general, macro variables exhibited a strong association with housing prices. While some correlations are weakened or strengthened, some are even reversed after the GFC. I also provide a literature review on why housing markets are essential for propagating shocks and related to business cycles. |
| Keywords: | Stylized facts, macro‐housing‐finance linkage, global financial crisis, business cycle frequency, housing market variables |
| JEL: | E30 G10 R30 |
| Date: | 2021–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2021_014&r= |
| By: | Akinci, Ozge; Benigno, Gianluca; Del Negro, Marco; Queralto, Albert |
| Abstract: | We introduce the concept of financial stability real interest rate using a macroeconomic banking model with an occasionally binding financing constraint as in Gertler and Kiyotaki (2010). The financial stability interest rate, r**, is the threshold interest rate that triggers the constraint being binding. Increasing imbalances in the financial sector measured by an increase in leverage are accompanied by a lower threshold that could trigger financial instability events. We also construct a theoretical implied financial condition index and show how it is related to the gap between the natural and financial stability interest rates. |
| Keywords: | Financial Amplification; financial crises; Occasionally Binding Credit Constraint; R** |
| JEL: | E41 F3 G01 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15436&r= |
| By: | Amiti, Mary; Itskhoki, Oleg; Konings, Jozef |
| Abstract: | The currency of invoicing in international trade is central for the international transmission of shocks and macroeconomic policies. Using a new dataset on currency invoicing for Belgian firms, we analyze how firms make their currency choice, for both exports and imports, and the implications of this choice for exchange rate pass-through into prices and quantities. We derive our estimating equations from a theoretical framework that features variable markups, international input sourcing, and staggered price setting with endogenous currency choice, and also allowing for the dominant currency choice. Our structural specification provides a new test of the allocative consequences of nominal rigidities, by estimating the treatment effect of foreign-currency price stickiness on the dynamic response of prices and quantities to exchange rate changes, controlling for the endogeneity of the firm's currency choice. We show that flexible-price determinants of exchange rate pass-through are also the key firm characteristics that determine currency choice. In particular, small non-importing firms tend to price their exports in euros (producer currency) and exhibit close to complete exchange-rate pass-through into destination prices at all horizons. In contrast, large import-intensive firms tend to denominate their exports in foreign currencies, and especially in the US dollar, exhibiting a lower pass-through of the euro-destination exchange rate and a pronounced sensitivity to the dollar-destination exchangerate. Finally, the effects of foreign-currency price stickiness are still significant beyond the one-year horizon, but gradually dissipate in the long run, consistent with sticky price models of currency choice. |
| Keywords: | currency choice; exchange rate pass-through |
| JEL: | E31 F31 F41 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15339&r= |
| By: | Böser, Florian; Gersbach, Hans |
| Abstract: | We examine how the introduction of an interest-bearing central bank digital currency (CBDC) impacts bank activities and monetary policy. Depositors can switch from bank deposits to CBDC as a safe medium of exchange at any time. As banks face digital runs, either because depositors have a preference for CBDC or fear bank insolvency, monetary policy can use collateral requirements (and default penalties) to initially increase bankers' monitoring incentives. This leads to higher aggregate productivity. However, the mass of households holding CBDC will increase over time, causing additional liquidity risk for banks. After a certain period, monetary policy with tight collateral requirements generating liquidity risk for banks and exposing bankers to default penalties would render banking non-viable and prompt the central bank to abandon such policies. Under these circumstances, bankers' monitoring incentives will revert to low levels. Accordingly, a CBDC can at best yield short-term welfare gains. |
| Keywords: | Central bank digital currency - Monetary policy - Banks - Deposits |
| JEL: | E42 E52 E58 G21 G28 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15322&r= |
| By: | Jacek Lewkowicz (Faculty of Economic Sciences, University of Warsaw); Michał Woźniak (Faculty of Economic Sciences, University of Warsaw); Michał Wrzesiński (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | The subject of central bank independence (CBI) and its consequences for monetary policy and economic development has been widely explored in public debate and research discourse. The main aim of the article is to analyze central bank independence, considering the institutional environment in a given country. Our primary focus is on the relevance of de jure provisions for de facto CBI, as well as on the importance of other structural factors. We rely on a dataset consisting of various novel indices to approximate these issues across multiple dimensions and apply advanced econometric tools to investigate our research tasks. The outcome of the study implies that the interrelationships between de jure and de facto CBI are observable. Thus, these conclusions may be successfully applied in institutional design and public policies regarding central banking. |
| Keywords: | central bank independence, uncertainty, political economy, law & economics, institutional economics |
| JEL: | E50 E58 K20 P48 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2021-06&r= |
| By: | Repullo, Rafael |
| Abstract: | This paper reviews the analysis in Brunnermeier and Koby (2018), showing that lower monetary policy rates can only lead to lower bank lending if there is a binding capital constraint and the bank is a net investor in debt securities, a condition typically satisfied by high deposit banks. It next notes that BK's capital constraint features the future value of the bank's capital, not the current value as in standard regulation. Then, it sets up an alternative model with a standard capital requirement in which profitability matters because bank capital is endogenously provided by shareholders, showing that in this model there is no reversal rate. |
| Keywords: | bank market power; Bank profitability; Capital requirements; monetary policy; Negative Interest Rates; reversal rate |
| JEL: | E52 G21 L13 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15367&r= |
| By: | Shigenori Shiratsuka (Faculty of Economics, Keio University) |
| Abstract: | Central bank digital currencies (CBDCs) are digital payment instruments provided by a central bank as its direct liability, denominated in the sovereign currency. CBDCs are classified into two main variants: "wholesale" CBDCs for limited counterparties mainly used in large-value payments between financial institutions, and "general purpose" CBDCs for a wide range of end-users, such as households and businesses. General purpose CBDCs are regarded as a payment device with high substitutability with both banknotes and bank deposits, as a key financial system infrastructure to enhance the efficiency and functioning of the payment services. General purpose CBDCs can be designed to enhance the separability between payment services and financial intermediation services. General purpose CBDCs are expected to play a key role in revitalizing the financial system by promoting market-based financial intermediation services while securing the stability of the payment system. To that end, the overall design of financial system infrastructures, such as access to central bank services, deposit insurance system, and wholesale payment and settlement system, needs to be comprehensively transformed with due consideration on the feature of financial systems, which is the strong status quo bias due to high degree of institutional complementarity. |
| Keywords: | Nonmarket valuation, Central bank digital currency, Financial system, payment services, financial intermediation services, institutional complementarity |
| JEL: | E40 E42 E58 G20 G21 G28 |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2021-010&r= |
| By: | Davide Debortoli; Ricardo Nunes; Pierre Yared |
| Abstract: | We consider optimal government debt maturity in a deterministic economy in which the government can issue any arbitrary debt maturity structure and in which bond prices are a function of the government's current and future primary surpluses. The government sequentially chooses policy, taking into account how current choices -which impacts future policy- feed back into current bond prices. We show that issuing consols constitutes the unique stationary optimal debt portfolio, as it boosts government credibility to future policy and reduces the debt financing costs. |
| Keywords: | public debt, optimal taxation, fiscal policy |
| JEL: | H63 H21 E62 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1253&r= |
| By: | Davide Debortoli; Ricardo Nunes; Pierre Yared |
| Abstract: | We consider optimal government debt maturity in a deterministic economy in which the government can issue any arbitrary debt maturity structure and in which bond prices are a function of the government's current and future primary surpluses. The government sequentially chooses policy, taking into account how current choices -which impacts future policy- feed back into current bond prices. We show that issuing consols constitutes the unique stationary optimal debt portfolio, as it boosts government credibility to future policy and reduces the debt financing costs. |
| Keywords: | Public debt, optimal taxation, fiscal policy |
| JEL: | H63 H21 E62 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1781&r= |
| By: | Davide Debortoli; Ricardo Nunes; Pierre Yared |
| Abstract: | We consider optimal government debt maturity in a deterministic economy in which the government can issue any arbitrary debt maturity structure and in which bond prices are a function of the government's current and future primary surpluses. The government sequentially chooses policy, taking into account how current choices -which impacts future policy- feed back into current bond prices. We show that issuing consols constitutes the unique stationary optimal debt portfolio, as it boosts government credibility to future policy and reduces the debt financing costs. |
| Keywords: | public debt, optimal taxation, fiscal policy |
| JEL: | H63 H21 E62 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1254&r= |
| By: | Jean Hindriks; Leonardo Madio; Valerio Serse |
| Abstract: | We study the impact of the Belgium lockdown on retail prices using a unique dataset tracking daily prices and promotions for various products in different stores and retail chains. Two distinctive features of our analysis are the ban on promotions during the first two weeks of the lockdown, and the presence of local pricing retail chains (LP) competing with uniform (national) pricing retail chains (UP). We decompose the price changes into the regular price, the frequency, and the size of promotions. The sale price (i.e., the price paid by consumer purchasing on “sale”) increased by 7% within two weeks and by 2.5% within three months. We then provide an heterogeneity analysis of the regular price variation across stores, retailers, products, and over time. We show that LP chains reacted the most to the lockdown with spatial heterogeneity. The heterogeneity in price response also suggests that the price increase was not driven by cost inflation. |
| Keywords: | Covid-19, pricing, lockdown, retailers |
| JEL: | D22 E30 E31 L11 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9074&r= |
| By: | Halvorsen, Elin; Holter, Hans; Ozkan, Serdar; Storesletten, Kjetil |
| Abstract: | This paper examines whether nonlinear and non-Gaussian features of earnings dynamics are caused by hours or hourly wages. Our findings from the Norwegian administrative and survey data are as follows: (i) Nonlinear mean reversion in earnings is driven by the dynamics of hours worked rather than wages since wage dynamics are close to linear while negative changes to hours are transitory and positive changes are persistent. (ii) Large earnings changes are driven equally by hours and wages, whereas small changes are associated mainly with wage shocks. (iii) Both wages and hours contribute to negative skewness and high kurtosis for earnings changes, although hour-wage interactions are quantitatively more important. (iv) When considering household earnings and disposable household income, the deviations from normality are mitigated relative to individual labor earnings: changes in disposable household income are close to symmetric and less leptokurtic. |
| Keywords: | Earnings Dynamics; Higher-order earnings risk; Hours; Income Shocks; Insurance; Kurtosis; Skewness; wages |
| JEL: | E24 H24 J24 J31 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15395&r= |
| By: | Prados de la Escosura, Leandro; Rosés, Joan R. |
| Abstract: | The current productivity slowdown has stimulated research on the causes of growth. We investigate here the proximate determinants of long-term growth in Spain. Over the last 170 years output per hour worked raised nearly 24-fold dominating GDP growth, while hours worked per person shrank by one-fourth and population trebled. Half of labour productivity growth resulted from capital deepening, one-third from total factor productivity, and labour quality contributed the rest. In phases of acceleration (the 1920s and 1954-85), TFP was labour productivity's main driver complemented by capital deepening. Since Spain's accession to the European Union (1985), labour productivity has sharply decelerated as capital deepening slowed down and TFP stagnated. Up to the Global Financial Crisis (2008) GDP growth mainly resulted from an increase in hours worked per person and, to a less extent, from sluggish labour productivity coming mostly from weak capital deepening. Institutional constraints help explain the labour productivity slowdown. |
| Keywords: | Capital Deepening; growth; labour productivity; Labour quality; Spain; total factor productivity |
| JEL: | D24 E01 N13 N14 O47 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15380&r= |
| By: | Danisewicz, Piotr; Ongena, Steven |
| Abstract: | Can local government spending spur entrepreneurial activity? To answer this question we study Poland where municipalities with lower tax revenues receive direct monetary grants from the national budget that vary at multiple pre-determined and non-manipulable thresholds. Employing a fuzzy regression discontinuity design, we find a positive impact of fiscal transfers on the number of firms, especially sole proprietorships and small firms. The impact is stronger in municipalities where the opposition is more involved in the legislative process or more parties are represented in the municipal council, and in regions where historical legacies shaped a more positive attitude towards entrepreneurship. |
| Keywords: | "Fuzzy" Regression Disconti-nuity Design; entrepreneurship; Fiscal Transfers; Local government spending |
| JEL: | E62 H71 H72 L26 P16 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15384&r= |
| By: | Yoseph Getachew |
| Abstract: | The paper introduces voluntary social distancing to the canonical epidemiology model, integrated into a conventional macroeconomic model. The model is extended to include treatment, vaccination, and government-enforced lockdown. Infection-averse individuals face a trade-off between a costly social distancing and the risk of getting infected and losing next-period labor income. We find an individual's social distancing is proportional to the welfare loss she incurs when moving to the infected compartment. It increases in the individual's psychological discount factor but decreases in the probability of receiving a vaccination. Quantitatively, a laissez-faire social distancing flattens the infection curve that minimizes the economic damage of the epidemic. A government-enforced social distancing is more effective in flattening the infection curve but has a detrimental effect on the economy. |
| Keywords: | COVID-19, lockdown, social distancing, macroeconomics, pandemics |
| JEL: | E1 H0 I1 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:844&r= |
| By: | Broner, Fernando A; Martín, Alberto; Ventura, Jaume |
| Abstract: | We analyze the conduct of fiscal policy in a financially integrated union in the presence of financial frictions. Frictions create a wedge between the return to investment and the union interest rate. This leads to an over-spending externality. While the social cost of spending is the return to investment, governments care mostly about the (depressed) interest rate they face. In other words, the crowding out effects of public spending are partly "exported" to the rest of the union. We argue that it may be hard for the union to deal with this externality through the design of fiscal rules, which are bound to be shaped by the preferences of the median country and not by efficiency considerations. We also analyze how this overspending externality - and the unionís ability to deal with it effectively - changes when the union is financially integrated with the rest of the world. Finally, we extend our model by introducing a zero lower bound on interest rates and show that, if financial frictions are severe enough, the union is pushed into a liquidity trap and the direction of the spending externality is reversed. At such times, fiscal rules that are appropriate during normal times might backfire. |
| Keywords: | Crowding out; Economic union; Financial Frictions; Fiscal coordination; Public Spending; Spending externalities |
| JEL: | E62 F32 F34 F36 F41 F42 F45 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15309&r= |
| By: | Gilchrist, Simon; Wei, Bin; Yue, Vivian; Zakrajsek, Egon |
| Abstract: | We evaluate the efficacy of the Secondary Market Corporate Credit Facility (SMCCF), a program designed to stabilize the corporate bond market in the wake of the Covid-19 shock. The Fed announced the SMCCF on March 23 and expanded the program on April 9. Regression discontinuity estimates imply that these announcements reduced credit spreads on bonds eligible for purchase 70 basis points. We refine this analysis by constructing a sample of bonds--issued by the same set of companies--which differ in their SMCCF eligibility. A diff-in-diff analysis shows that both announcements had large effects on credit spreads, narrowing spreads 20 basis points on eligible bonds relative to their ineligible counterparts within the same set of issuers across the two announcement periods. The March 23 announcement also reduced bid-ask spreads ten basis points within ten days of the announcement. By lowering credit spreads and improving liquidity, the April 9 announcement had an especially pronounced effect on "fallen angels.'' The actual purchases lowered credit spreads by an additional five basis points and bid-ask spreads by two basis points. These results confirm that the SMCCF made it easier for companies to borrow in the corporate bond market. |
| Keywords: | COVID-19; credit market support facilities; diff-in-diff; event study; purchase effects; Regression Discontinuity |
| JEL: | E44 E58 G12 G14 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15258&r= |
| By: | Levy, Antoine; Ricci, Luca Antonio; Werner, Alejandro |
| Abstract: | This paper assesses the dynamic impact of global macroeconomic conditions, commodity price movements, shifts in portfolio preferences, and domestic shocks on fiscal outcomes-notably the budget deficit, its main components, and debt-across a wide range of countries. Heterogeneity is investigated across the level of development and other structural characteristics. Dynamics are explored via panel local projections, while robustness is assessed via dynamic panel and system GMM regressions. World growth, financial risk appetite, political events, and commodity export prices are key determinants of fiscal outcomes in EM, while domestic growth, commodity import prices, and banking crises appear to matter more in AE. Our estimates help quantify the amount of fiscal risk generated by various factors, and thus provide inputs for the design of potential insurance mechanisms or state-contingent debt instruments that could assist in smoothing fiscal fluctuations. |
| Keywords: | debt; deficit; Fiscal; Fluctuations; Insurance; Sovereign debt |
| JEL: | E62 F41 H6 H87 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15450&r= |
| By: | Andrea L. Eisfeldt; Antonio Falato; Mindy Z. Xiaolan |
| Abstract: | The widespread and growing use of equity-based compensation has transformed high-skilled labor from a pure labor input to a class of "human capitalists." We show that high-skilled labor earns substantial income in the form of equity claims to firms' future dividends and capital gains. Equity-based compensation has dramatically increased since the 1980s, representing forty percent of total compensation to high-skilled labor in recent years. Ignoring equity income causes incorrect measurement of the returns to high-skilled labor, with substantial effects on macroeconomic trends. In our sample, including equity-based compensation in high-skilled labor income reduces the total decline in labor's wage-only income share relative to total value added since the 1980s by over 30%. The inclusion of equity-based compensation also eliminates the majority of the decline in the high-skilled labor share. Only by including equity pay does our structural estimation support complementarity between high-skilled labor and physical capital greater than that of Cobb and Douglas (1928). We also provide additional regression evidence of such complementarity. |
| JEL: | E0 E25 G3 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28815&r= |
| By: | Tsoulfidis, Lefteris; Tsaliki, Persefoni |
| Abstract: | In this article, we argue the rate of profit in combination with the movement of the real net profits determines the phase-change of the economy in its long cyclical pattern. Since WWII, the US and the world economy have experienced two such long cycles. The pandemic COVID-19 has deepened a recession that has been already underway since 2007. The growth rates in the first post-pandemic years are expected to be high; however, soon after, the economies will find themselves back to their old recessionary growth paths. The onset of a new long cycle requires the restoration of profitability, which can be sustained only through the introduction of ‘disruptive’ innovations backed by suitable institutional arrangements. |
| Keywords: | Long recession, secular stagnation, pandemic, long cycles, institutional changes, disruptive innovations |
| JEL: | B5 D33 E1 N12 O51 |
| Date: | 2021–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107737&r= |
| By: | Aruoba, Boragan; Cuba-Borda, Pablo; Hilga-Flores, Kenji; Schorfheide, Frank; Villalvazo, Sergio |
| Abstract: | We develop an algorithm to construct approximate decision rules that are piecewise-linear and continuous for DSGE models with an occasionally binding constraint. The functional form of the decision rules allows us to derive a conditionally optimal particle filter (COPF) for the evaluation of the likelihood function that exploits the structure of the solution. We document the accuracy of the likelihood approximation and embed it into a particle Markov chain Monte Carlo algorithm to conduct Bayesian estimation. Compared with a standard bootstrap particle filter, the COPF significantly reduces the persistence of the Markov chain, improves the accuracy of Monte Carlo approximations of posterior moments, and drastically speeds up computations. We use the techniques to estimate a small-scale DSGE model to assess the effects of the government spending portion of the American Recovery and Reinvestment Act in 2009 when interest rates reached the zero lower bound. |
| Keywords: | Bayesian estimation; Effective Lower Bound on Nominal Interest Rates; Nonlinear Filtering; Nonlinear Solution Methods; Particle MCMC |
| JEL: | C5 E4 E5 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15388&r= |
| By: | Baumeister, Christiane; Guerin, Pierre |
| Abstract: | This paper evaluates the predictive content of a set of alternative monthly indicators of global economic activity for nowcasting and forecasting quarterly world GDP using mixed-frequency models. We find that a recently proposed indicator that covers multiple dimensions of the global economy consistently produces substantial improvements in forecast accuracy, while other monthly measures have more mixed success. This global economic conditions indicator contains valuable information also for assessing the current and future state of the economy for a set of individual countries and groups of countries. We use this indicator to track the evolution of the nowcasts for the US, the OECD area, and the world economy during the coronavirus pandemic and quantify the main factors driving the nowcasts. |
| Keywords: | Forecasting; global economic conditions; MIDAS models; Mixed frequency; Nowcasting; world GDP growth |
| JEL: | C22 C52 E37 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15403&r= |
| By: | Baneng Naape; Nyasha Mahonye |
| Abstract: | This study aims to scrutinize the responsiveness of the South African tax system to changes in economic performance. The study made use of annual time series data spanning from 1995 – 2017. The tax system was found to be fairly buoyant, albeit there is still room for improvement. The ARDL bounds test results indicate that VAT revenue and custom duties grow at a faster pace than the growth in final household consumption and import value, respectively. VAT revenue has a long run buoyancy coefficient of 1.35 while custom duties have a long run buoyancy coefficient of 1.42. This implies that VAT revenue and custom duties are perfectly elastic to variations in their respective bases, at least in the long run. The estimated buoyancy coefficient for total tax revenue growth is 0.82, implying that the growth in total tax revenue did not match the growth of the economy during the estimation period. The government can improve the efficiency and responsiveness of the tax system through good governance and strong political leadership. Furthermore, structural economic reforms are necessary to boost growth and tax revenue mobilisation. |
| Keywords: | Tax buoyancy, bounds test, tax performance, South Africa |
| JEL: | O57 H29 E62 H21 H68 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:835&r= |
| By: | Sergi Basco; John P. Tang |
| Abstract: | How does local credit supply affect economic dynamism? Using an exogenous bond shock in historical Japan and new genealogical firm-level data, we empirically examine the effects of credit availability on firm life cycles. Our main result shows that, consistent with our theoretical model, the lifespan of firms decreases with bank capital. Capital-abundant regions have more firm destruction. For manufacturing, we document that these regions have both increased firm creation and destruction. These results suggest that samurai bonds were conducive to the emergence of banking, which eased firms’ financial constraints and led to more economic dynamism. |
| Keywords: | credit supply, banks, liquidity constraints, firm dynamics, entrepreneurship |
| JEL: | E51 N15 O16 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:auu:hpaper:095&r= |
| By: | Funke, Manuel; Schularick, Moritz; Trebesch, Christoph |
| Abstract: | Populism at the country level is at an all-time high, with more than 25% of nations currently governed by populists. How do economies perform under populist leaders? We build a new long-run cross-country database to study the macroeconomic history of populism. We identify 50 populist presidents and prime ministers from 1900 to 2018 and show that the economic cost of populism is high. After 15 years, GDP per capita is 10% lower compared to a plausible non-populist counterfactual. Rising economic nationalism and protectionism, unsustainable macroeconomic policies, and institutional decay under populist rule do lasting damage to the economy. |
| Keywords: | institutions; populism; protectionism |
| JEL: | E60 N10 P16 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15405&r= |
| By: | Comin, Diego; Quintana Gonzalez, Javier; Schmitz, Tom; Trigari, Antonella |
| Abstract: | Standard methods for estimating total factor productivity (TFP) growth assume that economic profits are zero and adjustment costs are negligible. Moreover, following the seminal contribution of Basu, Fernald and Kimball (2006), they use changes in hours per worker as a proxy for unobserved changes in capacity utilization. In this paper, we propose a new estimation method that accounts for non-zero profits, structurally estimates adjustment costs, and relies on a utilization proxy from firm surveys. We then compute industry-level and aggregate TFP growth rates for the United States and five European countries, for the period 1995-2016. In the United States, our results suggest that the recent slowdown of TFP growth was more gradual than previously thought. In Europe, we find that TFP was essentially flat during the Great Recession, while standard methods suggest a substantial decrease. These differences are driven by profits in the United States, and by profits and our new utilization proxy in Europe. |
| JEL: | E01 E30 O30 O40 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15402&r= |
| By: | Chudik, Alexander; Mehdi, Raissi; Mohaddes, Kamiar; Pesaran, M Hashem; Rebucci, Alessandro |
| Abstract: | This paper develops a threshold-augmented dynamic multi-country model (TGVAR) to quantify the macroeconomic effects of Covid-19. We show that there exist threshold effects in the relationship between output growth and excess global volatility at individual country levels in a significant majority of advanced economies and in the case of several emerging markets. We then estimate a more general multi-country model augmented with these threshold effects as well as long term interest rates, oil prices, exchange rates and equity returns to perform counterfactual analyses. We distinguish common global factors from trade-related spillovers, and identify the Covid-19 shock using GDP growth forecast revisions of the IMF in 2020Q1. We account for sample uncertainty by bootstrapping the multi-country model estimated over four decades of quarterly observations. Our results show that the Covid-19 pandemic will lead to a significant fall in world output that is most likely long-lasting, with outcomes that are quite heterogenous across countries and regions. While the impact on China and other emerging Asian economies are estimated to be less severe, the United States, the United Kingdom, and several other advanced economies may experience deeper and longer-lasting effects. Non-Asian emerging markets stand out for their vulnerability. We show that no country is immune to the economic fallout of the pandemic because of global interconnections as evidenced by the case of Sweden. We also find that long-term interest rates could fall significantly below their recent lows in core advanced economies, but this does not seem to be the case in emerging markets. |
| Keywords: | COVID-19; Global Volatility; international business cycle; Threshold Effects; Threshold-augmented Global VAR (TGVAR) |
| JEL: | C32 E44 F44 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15312&r= |
| By: | Omay, Tolga; Shahbaz, Muhammad; Stewart, Chris |
| Abstract: | We investigate the hysteresis hypothesis by proposing a heterogeneous panel unit root test that allows for gradually changing trends and cross-sectional dependence (CSD) among panel members using a flexible Fourier form. Inconclusive results from previous studies are potentially due to using very restrictive specifications with homogenous break structures and/or exogenously determined abrupt breaks. We seek to address these limitations by employing general specifications that are more capable of characterising the true data generation process of unemployment and by allowing for spill-over effects using a bootstrapping procedure to accommodate CSD that must be considered in a globalized world. Extensive simulations suggest that the failure to take structural breaks and CSD into account can lead to misleading conclusions about whether the unemployment rate is stationarity. We apply our test procedure to unemployment data for 23 OECD countries and find conclusive evidence against the hysteresis hypothesis for all these countries. |
| Keywords: | Smooth Break, Panel Unit Root, Cross Section Dependency, CCE, Hysteresis |
| JEL: | E0 |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107691&r= |
| By: | Peter Fuleky (University of Hawai‘i at Manoa Department of Economics, University of Hawai‘i Economic Research Organization) |
| Abstract: | I develop a weekly coincident index of economic activity in the State of Hawaii. The purpose of the index is to nowcast the recovery from the COVID-19 induced downturn. The index is the first principal component extracted from 18 daily and weekly state-level time series, it captures about 80% of the variation in the sample, it is available with a four-day lag, and it leads the changes in nonfarm payrolls and the Philadelphia Fed coincident index. |
| Keywords: | coincident index; principal component analysis; high-frequency data; nowcasting; COVID-19 |
| JEL: | C22 C53 C82 E27 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:hae:wpaper:2020-3&r= |
| By: | Bozio, Antoine; Garbinti, Bertrand; Goupille-Lebret, Jonathan; Guillot, Malka; Piketty, Thomas |
| Abstract: | How much redistribution policies can account for long-run changes in inequality? To answer this question, we quantify the extent of redistribution over time by the percentage reduction from pretax to post-tax inequalities, and decompose the changes in post-tax inequalities into different redistributive policies and changes in pretax inequalities. To estimate these redistributive statistics, we construct homogenous annual series of post-tax national income for France over the 1900-2018 period, and compare them with those recently constructed for the U.S. We obtain three major findings. First, redistribution has increased in both countries over the period, earlier in the U.S., later in France, to reach similar levels today. Second, the substantial long-run decline in post-tax inequality in France over the 1900-2018 period is due mostly to the fall in pretax inequality (accounting for three quarters of the total decline), and to a lesser extent to the direct redistributive role of taxes, transfers and other public spending (about one quarter). Third, the reason why overall inequality is much smaller in France than in the U.S. is entirely due to differences in pretax inequality. These findings suggest that policy discussions on inequality should, in the future, pay more attention to policies affecting pretax inequality and should not focus exclusively on "redistribution". |
| Keywords: | inequality; Predistribution; redistribution; taxation |
| JEL: | E01 H2 H5 I3 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15415&r= |
| By: | Demir, Banu; Javorcik, Beata; Michalski, Tomasz; Örs, Evren |
| Abstract: | This study finds that even small unexpected supply shocks propagate downstream through production networks and are amplified by firms with short-term financial constraints. The unexpected 2011 increase in the tax on imports purchased with foreign-sourced trade credit is examined using data capturing almost all Turkish supplier-customer links. The identification strategy exploits the heterogeneous impact of the shock on importers. The results indicate that this small shock had a non-trivial economic impact on exposed firms and propagated downstream through affected suppliers. Empirical tests, motivated by a simple theory, demonstrate that low-liquidity firms amplified its transmission. |
| Keywords: | Financing constraints; liquidity; production networks; shock transmission |
| JEL: | E23 F14 F61 G23 L14 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15316&r= |
| By: | Michael Christl; Silvia De Poli; Tine Hufkens; Andreas Peichl; Mattia Ricci |
| Abstract: | In this paper, we investigate the impact of the COVID-19 pandemic on German household income using a micro-level approach. We combine a microsimulation model with labour market transition techniques to simulate the COVID-19 shock on the German labour market. We find the consequences of the labour market shock to be highly regressive with a strong impact on the poorest households. However, this effect is nearly entirely offset by automatic stabilisers and discretionary policy measures. We explore the cushioning effect of these policies in detail, showing that short-time working schemes and especially the one-off payments for children are effective in cushioning the income loss of the poor. |
| Keywords: | Covid-19, EUROMOD, microsimulation, STW, automatic stabilisers |
| JEL: | D31 E24 H24 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9072&r= |
| By: | Nicolas End (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Government fiscal actions influence forward-looking private agents' current and future decisions, which, in turn, impact fiscal performance. This paper highlights this expectation channel with a Barro-type endogenous growth model where an impatient government finances growth-enhancing spending through income taxes and public debt. Fiscal and macroeconomic outcomes emerge from the interplay of households and policymakers' preferences for public expenditure and private consumption. I find that the government's maximizing its own utility and facing an endogenous interest spread are sufficient ingredients to yield multiple equilibria, independently of the government's policy intentions. The economy almost always heads to the high public spending equilibrium, emphasizing the importance of fiscal institutions to tame government impatience and bolster fiscal credibility. |
| Keywords: | fiscal policy,credibility,expectations |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03222115&r= |
| By: | Luciano Campos (Red Nacional de Investigadores en Economía (RedNIE)); Agustín Casas (Colegio Universitario de Estudios Financieros (CUNEF)) |
| Abstract: | At the turn of the century, some new governments in Latin America have been characterized as populist (the so-called new Latin American Left). We focus on the macroeconomic implications of the policies adopted by these governments (instead of their leaders’ rhetoric) and we investigate to what extent this characterization holds. To do so, we identify economic populism with a bivariate vector autoregressive model using real and nominal wages and where populist shocks have no long-run effects on the former variable. The underlying idea of this identification is that populist leaders tend to prioritize income distribution with higher nominal wages disregarding the consistency with the evolution of productivity. Our results indicate that economic populism is not as widespread as previously thought, and that our nuanced approach leads to more informative results. For instance, while we find populism in Argentina, the results for Brazil, Bolivia and Ecuador show only sporadic populist events. In the remaining countries, we do not find persistent economic populism. |
| Keywords: | Macroeconomics of populism Income redistribution Structural VARs Long-run restrictions Latin America |
| JEL: | C32 E64 H11 N36 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:13&r= |
| By: | Ferrari, Massimo; Mehl, Arnaud; Stracca, Livio |
| Abstract: | We examine the open-economy implications of the introduction of a central bank digital currency (CBDC). We add a CBDC to the menu of monetary assets available in a standard two-country DSGE model and consider a broad set of alternative technical features in CBDC design. We analyse the international transmission of standard monetary policy and technology shocks in the presence and absence of a CDBC and the implications for optimal monetary policy and welfare. The presence of a CBDC amplifies the international spillovers of shocks to a significant extent, thereby increasing international linkages. But the magnitude of these effects depends crucially on CBDC design and can be significantly dampened if the CBDC possesses specific technical features. We also show that domestic issuance of a CBDC increases asymmetries in the international monetary system by reducing monetary policy autonomy in foreign economies. |
| Keywords: | Central bank digital currency; DSGE model; international monetary system; open-economy; Optimal monetary policy |
| JEL: | E50 F30 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15335&r= |
| By: | Kabundi, Alain; Ohnsorge, Franziska |
| Abstract: | The COVID-19-triggered collapse in oil prices in March and April 2020 was the seventh, and by far the most severe, in a series of such collapses since 1970. This paper, first, compares this most recent collapse and its drivers with previous ones in an event study. It finds that it was associated with an exceptionally severe plunge in oil demand. Second, in a local projections model, this paper estimates the implications of demand- and supply-driven oil price collapses for growth in emerging markets and developing economies (EMDEs). The paper finds that steep oil price collapses were associated with significant and lasting output losses in energy-exporting EMDEs but no meaningful output gains in energy-importing EMDEs. These results are robust to multiple robustness checks. |
| Keywords: | Covid-19 pandemic; demand factors; local projections model; macroeconomic implications; oil price decline; supply factors |
| JEL: | E32 F40 Q40 Q41 Q43 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15296&r= |
| By: | Melosi, Leonardo; Rottner, Matthias |
| Abstract: | We study contact tracing in a new macro-epidemiological model in which infected agents may not show any symptoms of the disease and the availability of tests to detect asymptomatic spreaders is limited. Contact tracing is a testing strategy that aims to reconstruct the infection chain of newly symptomatic agents. We show that contact tracing may be insufficient to stem the spread of infections because agents fail to internalize that their individual consumption and labor decisions increase the number of traceable contacts to be tested in the future. Complementing contact tracing with timely, moderate lockdowns corrects this coordination failure, allowing policymakers to buy time to expand the testing scale so as to preserve the testing system. We provide theoretical underpinnings to the risk of becoming infected in macro-epidemiological models. Our methodology to reconstruct infection chains is not affected by curse-of-dimensionality problems. |
| Keywords: | Contact Tracing; Coordination failure; COVID-19; Epidemics; Externalities; infection chain; lockdown; Quarantine; SIR-macro model; Testing |
| JEL: | D62 E10 I10 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15482&r= |
| By: | Ofori, Isaac K.; Asongu, Simplice A. |
| Abstract: | This study examines the joint effects of ICT diffusion (composed of access, usage and skills), and foreign direct investment (FDI) on inclusive growth in sub-Saharan Africa (SSA). The study draws on data from the World Bank’s World Development Indicators, and the Global Consumption and Income Project for the period 1980–2019 for the analysis. The study provides evidence robust to several specifications from ordinary least squares and dynamic system GMM estimation techniques to show that: (1) FDI and ICT diffusion and corresponding components (ICT access, usage, skills) induce inclusive growth in SSA; (2) compared to its direct effect, FDI is remarkable in fostering shared growth in SSA in the presence of greater ICT diffusion, and (3) compared to ICT access and usage, ICT skills are more effective in driving inclusive growth in SSA. Overall FDI modulates ICT dynamics to engender positive synergy effects on inclusive growth. Policy recommendations are provided in line with the implementation of the African Continental Free Trade Area (AfCFTA) Agreement and the projected rise in FDI in SSA from 2022. |
| Keywords: | FDI,ICT Access,ICT Diffusion,ICT Skills,ICT Usage,Inclusive Growth,sub-Saharan Africa |
| JEL: | E23 F21 F30 L96 O55 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:233982&r= |
| By: | Kenny, Sean; Lennard, Jason; O'Rourke, Kevin Hjortshøj |
| Abstract: | We construct an annual index of Irish industrial output for 1800-1921, the period during which the entire island was in a political Union with Great Britain. We also construct a new industrial price index. Irish industrial output grew by an average of 1.4 per cent per annum over the period as a whole, and by 1.8 per cent per annum between 1800 and the outbreak of World War I. Industrial growth was more rapid than previously thought before the Famine, and slower afterwards. While Ireland did not experience deindustrialization either before the Famine or afterwards, its industrial growth was disappointing when considered in a comparative perspective. |
| Keywords: | Famine; historical national accounts; Industrial Production; Ireland |
| JEL: | E01 N13 N14 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15375&r= |
| By: | de Groot, Oliver; Mazelis, Falk; Motto, Roberto; Ristiniemi, Annukka |
| Abstract: | This paper presents a toolkit for generating optimal policy projections. It makes five contributions. First, the toolkit requires a minimal set of inputs: only a baseline projection for target and instrument variables and impulse responses of those variables to policy shocks. Second, it solves optimal policy projections under commitment, limited-time commitment, and discretion. Third, it handles multiple policy instruments. Fourth, it handles multiple constraints on policy instruments such as a lower bound on the policy rate and an upper bound on asset purchases. Fifth, it allows alternative approaches to address the forward guidance puzzle. The toolkit that accompanies this paper is Dynare compatible, which facilitates its use. Examples replicate existing results in the optimal monetary policy literature and illustrate the usefulness of the toolkit for highlighting policy trade-offs. We use the toolkit to analyse US monetary policy at the height of the Great Financial Crisis. Given the Fed’s early-2009 baseline macroeconomic projections, we find the Fed’s planned use of the policy rate was close to optimal whereas a more aggressive QE program would have been beneficial. JEL Classification: C61, C63, E52, E58 |
| Keywords: | asset purchases, commitment vs. discretion, forward guidance puzzle, lower bound, optimal monetary policy |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212555&r= |
| By: | Afees A. Salisu (University of Ibadan); Rangan Gupta (University of Pretoria); Sayar Karmakar (University of Florida); Sonali Das (University of Pretoria) |
| Abstract: | In this paper we develop a proxy for global uncertainty based on the volatility of gold market over the annual period of 1311 to 2019, and then use this proxy metric to forecast historical growth rates for eight advance economies namely, France, Germany, Holland, Italy, Japan, Spain, the United Kingdom (UK), and the United States (US). We find that for the within-sample period, uncertainty negatively impacts output growth, but more importantly, over the out-of-sample period, gold market volatility produces statistically significant forecasting gains. Our findings are robust to an alternative measure of uncertainty based on the volatility of the changes in long-term sovereign real-rates over 1315 to 2019. These historical results have important implications for investors and policymakers in the current context in which high frequency gold price data is available. |
| Keywords: | Historical output growth, advance economies, gold market volatility, forecasting |
| JEL: | C22 C53 E32 Q02 |
| Date: | 2021–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2021_017&r= |
| By: | Anthanasius Fomum Tita; Pieter Opperman |
| Abstract: | Homeownership by the lower and middle-income households is crucial to create wealth, particularly for South Africa with high levels of economic and wealth inequality. However, scholarship has paid little attention to how income affects the affordable housing market segment despite its systemic importance to the South African economy. This study employs the asymmetric autoregressive distributed lag model to study the effect of household income per capita on the affordable house prices in South Africa using quarterly data from 1985 to 2016. The results revealed the presence of an asymmetric long-run relationship between affordable house prices and household income per capita. The estimated asymmetric long-run coefficients of logIncome[+] and longIncome[-] are 1.080 and -4.354 respectively implying that a 1% increase/decrease in household income per capita induces a 1.08% rise/4.35% decline in affordable house prices everything being equal. We argue that given the 71.4% market share of affordable housing in all residential properties in South Africa, a persistent fall in household income can trigger a systemic crisis, particularly with mortgage securitization. Thus, policymakers should closely monitor the practice of mortgage securitization, particularly in the affordable market segment to avoid systemic risk to the economy. |
| Keywords: | house prices, household income per capita, symmetric and asymmetric autoregressive distributed lag models |
| JEL: | R3 C1 E2 E13 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:856&r= |
| By: | Ines Helm; Jan Stuhler |
| Abstract: | We study the fiscal and tax response to intergovernmental grants, exploiting quasi-experimental variation within Germany’s fiscal equalization scheme triggered by Census revisions of official population counts. Municipal budgets do not adjust instantly. Instead, spending and investments adapt within five years to revenue gains, while adjustment to revenue losses is more rapid. Yet, the long-run response is symmetric. The tax response is particularly slow, stretching over more than a decade. Well-known empirical “anomalies” in public finance such as the flypaper effect are thus primarily a short-run phenomenon, while long-run fiscal behavior appears more consistent with standard theories of fiscal federalism. |
| Keywords: | intergovernmental grants, fiscal transfers, government spending, local taxation, census shock, flypaper effect |
| JEL: | H71 H72 H77 E62 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9083&r= |
| By: | Isaac K. Ofori (University of Insubria, Varese, Italy); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | This study examines the joint effects of ICT diffusion (composed of access, usage and skills), and foreign direct investment (FDI) on inclusive growth in sub-Saharan Africa (SSA). The study draws on data from the World Bank’s World Development Indicators, and the Global Consumption and Income Project for the period 1980–2019 for the analysis. The study provides evidence robust to several specifications from ordinary least squares and dynamic system GMM estimation techniques to show that: (1) FDI and ICT diffusion and corresponding components (ICT access, usage, skills) induce inclusive growth in SSA; (2) compared to its direct effect, FDI is remarkable in fostering shared growth in SSA in the presence of greater ICT diffusion, and (3) compared to ICT access and usage, ICT skills are more effective in driving inclusive growth in SSA. Overall FDI modulates ICT dynamics to engender positive synergy effects on inclusive growth. Policy recommendations are provided in line with the implementation of the African Continental Free Trade Area (AfCFTA) Agreement and the projected rise in FDI in SSA from 2022. |
| Keywords: | FDI; ICT Access; ICT Diffusion; ICT Skills; ICT Usage; Inclusive Growth; sub- Saharan Africa |
| JEL: | E23 F21 F30 L96 O55 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:21/029&r= |
| By: | Herkenhoff, Philipp; Sauré, Philip |
| Abstract: | We show that the current account balance (CA) is systematically distorted by an inflation effect, which arises because income on foreign-issued debt is recorded as nominal interest in the currency of denomination. Since nominal interest includes compensations for expected inflation, increases in the latter must impact the CA. Guided by the relevant international accounting rules, we impute the inflation effect for 50 economies between 1991 and 2017. When adjusting for the inflation effect, the absolute value of yearly CAs drops by 0.13% of GDP on average. Over the full period, the reduction is sizable 22.85% of initial GDP for the average country (26.4% for the U.S.). As the flip-side of the CA distortions, the inflation effect contributes systematically to the well-known valuation effect of net foreign assets, of which about a twelfth is accounted for between 1991 and 2017 for the average country and well over half for the U.S. |
| Keywords: | current account; inflation; Valuation effects |
| JEL: | F30 F32 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15469&r= |
| By: | Mara Leticia Rojas (Universidad Nacional del Sur/CONICET) |
| Abstract: | El objetivo del trabajo es observar el comportamiento de un conjunto ampliado de variables macroeconómicas para Argentina en el período 2004-2020, mediante el análisis de funciones de correlación cruzada entre los componentes cíclicos de las series desestacionalizadas y las series desestacionalizadas y preblanqueadas. Este segundo paso implica utilizar una metodología más rigurosa que el filtrado comúnmente utilizado siendo que los componentes cíclicos suelen tener elementos inerciales. Se pretende actualizar los resultados en referencia al tema, establecer comparaciones con trabajos previos a fin de verificar o no la persistencia de los fenómenos observados y ampliar el análisis dado que se incluyen 30 variables representativas del producto, el mercado laboral, el sector público, sector monetario y sector externo. Las principales conclusiones muestran una persistencia en el comportamiento de las variables reales, como ser el consumo, la inversión o el salario real; mientras que las variables monetarias y las representa del gasto gubernamental y sector externo (incluidas algunas referidas a movimientos de capitales) merecen un análisis mucho más detallado. |
| Keywords: | Ciclo económico Hechos estilizados Argentina Filtro HP Preblanqueo |
| JEL: | E3 N1 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:28&r= |
| By: | David Dam; Davide Melcangi; Laura Pilossoph; Will Schirmer |
| Abstract: | Spending on goods and services that were constrained during the pandemic is expected to grow at a fast pace as the economy reopens. In this post, we look at detailed spending data to track which consumption categories were the most constrained by the pandemic due to social distancing. We find that, in 2019, high-income households typically spent relatively more on these pandemic-constrained goods and services. Our findings suggest that these consumers may have strongly reduced consumption during the pandemic and will likely play a crucial role in unleashing pent-up demand when pandemic restrictions ease. |
| Keywords: | consumption; pandemic; COVID-19 |
| JEL: | D14 E2 |
| Date: | 2021–05–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:91627&r= |
| By: | Eller, Markus; Hauzenberger, Niko; Huber, Florian; Schuberth, Helene; Vashold, Lukas |
| Abstract: | In line with the recent policy discussion on the use of macroprudential measures to respond to cross-border risks arising from capital flows, this paper tries to quantify to what extent macroprudential policies (MPPs) have been able to stabilize capital flows in Central, Eastern and Southeastern Europe (CESEE) – a region that experienced a substantial boom-bust cycle in capital flows amid the global financial crisis and where policymakers had been quite active in adopting MPPs already before that crisis. To study the dynamic responses of capital flows to MPP shocks, we propose a novel regime-switching factor-augmented vector autoregressive (FAVAR) model. It allows to capture potential structural breaks in the policy regime and to control – besides domestic macroeconomic quantities – for the impact of global factors such as the global financial cycle. Feeding into this model a novel intensity-adjusted macroprudential policy index, we find that tighter MPPs may be effective in containing domestic private sector credit growth and the volumes of gross capital inflows in a majority of the countries analyzed. However, they do not seem to generally shield CESEE countries from capital flow volatility. JEL Classification: C38, E61, F44, G28 |
| Keywords: | capital flows, CESEE, global factors, macroprudential policy, regime-switching FAVAR |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:srk:srkwps:2021118&r= |
| By: | Morais, Bernardo; Ormazabal, Gaizka; Peydró, José Luis; Roa, Monica; Sarmiento, Miguel |
| Abstract: | We show corporate-level real, financial, and (bank) risk-taking effects associated with calculating loan provisions based on expected-rather than incurred-credit losses. For identification, we exploit unique features of a Colombian reform and supervisory, matched loan-level data. The regulatory change induces a dramatic increase in provisions. Banks tighten all new lending conditions, adversely affecting borrowing-firms, with stronger effects for risky-firms. Moreover, to minimize provisioning, more affected (less-capitalized) banks cut credit supply to risky-firms- SMEs with shorter credit history, less tangible assets or more defaulted loans-but engage in "search-for-yield" within regulatory constraints and increase portfolio concentration, thereby decreasing risk diversification. |
| Keywords: | bank risk-taking; corporate real and credit supply effects of accounting; ECL; IFRS9; loan provisions |
| JEL: | E31 G18 G21 G28 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15278&r= |
| By: | Montenegro, Adriana (IISEC, Universidad Católica Boliviana) |
| Abstract: | Existe un aparente consenso, a nivel de políticas públicas, respecto al efecto empoderante que tiene para las mujeres el trabajo fuera del hogar, por lo que se supone que tendería a reducir los niveles de violencia en su contra. No obstante, la evidencia empírica sobre la relación entre trabajo femenino y violencia es inconsistente. Frente a dicha inconsistencia, la presente investigación examina cuál fue el efecto del trabajo productivo de las mujeres casadas o convivientes en Bolivia sobre su probabilidad de ser víctimas de violencia de pareja durante el año 2016, utilizando los datos de la Encuesta de Prevalencia y Características de la Violencia Contra las Mujeres. Mediante un modelo de probit bivariado, fue posible llegar a la conclusión de que el trabajo no tiene un efecto significativo sobre la propensión de una mujer a sufrir violencia de pareja, una vez corregido el sesgo de endogeneidad. En cambio, otras variables sí se relacionan de manera significativa con el fenómeno, tales como la experiencia de violencia en el hogar de origen (tanto de la víctima como de su pareja), que la incrementan considerablemente y, por otra parte, el nivel educativo y edad de la mujer al momento de la unión, que la reducen. |
| Keywords: | Violencia de pareja; Bolivia; prevención de violencia; trabajo remunerado de las mujeres; violencia contra la mujer; Instituto de Investigaciones Socio-Económicas; IISEC |
| JEL: | C25 E24 J12 |
| Date: | 2021–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:iisecd:2021_002&r= |
| By: | Ojo, Marianne |
| Abstract: | What roles exist for public and private partnerships within the context of central bank digital currencies (CBDCs), in an increasingly digitalized global system? Do central bank digital currencies (CBDCs) serve as public goods rather than tools which should primarily remain within the realm and governance of private sector firms? What challenges or risks are presented through the use of CBDCs and how can such risks be mitigated through current existing structures - as well as models which have been propounded in relation to public – private partnerships? This paper aims to contribute to the literature on the topic through a consideration of several variants and models of CBDCs under which the public private partnership would function, namely the synthetic CBDC (sCBDC) and the two-tiered CBDC. Further, two other types of CBDCs, namely the wholesale CBDC and the retail CBDC will be distinguished - as well as the account based CBDC, which is contrasted to CBDCs based on digital tokens. Whilst concerns for privacy and security remain paramount and cannot be undermined, particularly from the perspectives of distributed ledger technologies (and blockchains – through which such platforms operate), such concerns need to be weighed against the need for identification since regulators will be better supported in their goals in enforcing the law, as well as identifying fraudulent operations, where sufficient identification procedures have been put in place |
| Keywords: | CBDCs; synthetic CBDCs; two tiered CBDCs; retail CBDC; distributed ledger technologies; regulation; governance; anti trust ; competition; financial stability |
| JEL: | E58 F2 F64 G3 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107716&r= |
| By: | Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; Kenny, Geoff; Weber, Michael |
| Abstract: | Using a new survey of European households, we study how exogenous variation in the macroeconomic uncertainty perceived by households affects their spending decisions. We use randomized information treatments that provide different types of information about the first and/or second moments of future economic growth to generate exogenous changes in the perceived macroeconomic uncertainty of some households. The effects on their spending decisions relative to an untreated control group are measured in follow-up surveys. Higher macroeconomic uncertainty induces households to reduce their spending on non-durable goods and services in subsequent months as well as to engage in fewer purchases of larger items such as package holidays or luxury goods. Moreover, uncertainty reduces household propensity to invest in mutual funds. These results support the notion that macroeconomic uncertainty can impact household decisions and have large negative effects on economic outcomes. JEL Classification: E3, E4, E5 |
| Keywords: | household finance, household spending, randomized control trial, surveys, uncertainty |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212557&r= |
| By: | Laurent E. Calvet; John Y. Campbell; Francisco Gomes; Paolo Sodini |
| Abstract: | This paper estimates the cross-sectional distribution of Epstein-Zin preference parameters in a large administrative panel of Swedish households. We consider life-cycle model of saving and portfolio choice that incorporates risky labor income, safe and risky financial assets inside and outside retirement accounts, and real estate. We study middle-aged stock-owning households grouped by education, industry of employment, and birth cohort as well as by their accumulated wealth and risky portfolio shares. We find some heterogeneity in risk aversion (a standard deviation of 0.47 around a mean of 5.24 and median of 5.30) and considerable heterogeneity in the time preference rate (standard deviation 6.0% around a mean of 6.2% and median of 4.1%) and elasticity of intertemporal substitution (standard deviation 0.96 around a mean of 0.99 and median of 0.42). Risk aversion and the EIS are almost cross-sectionally uncorrelated, in contrast with the strong negative correlation that we would find if households had power utility with heterogeneous risk aversion. The TPR is weakly negatively correlated with both the other parameters. We estimate lower risk aversion for households with riskier labor income and higher levels of education, and a higher TPR and lower EIS for households who enter our sample with low initial wealth. |
| JEL: | E21 G51 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28788&r= |
| By: | Hansen, Kerstin F. (University of Basel); Stutzer, Alois (University of Basel) |
| Abstract: | We analyze how the exposure to adverse macroeconomic conditions during the "impressionable years" (i.e., between the age of 18 and 25), in interaction with welfare state institutions, forms political attitudes in adulthood. Based on a large panel dataset of European countries, we find that individuals who experienced high unemployment under a regime of low unemployment benefits are more in favor of redistribution later in life and state an orientation more oriented towards the left. However, negative economic shocks in an environment with a very generous unemployment insurance are related to less support of redistribution and a more rightist political attitude later on. The development of the welfare state thus seems crucial for how economic shocks affect the evolution of preferences and norms in society and thus finally feedback on institutional change. |
| Keywords: | macroeconomic experiences, impressionable years, support for redistribution, unemployment, unemployment insurance |
| JEL: | E60 J65 P16 P48 Z13 |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14327&r= |
| By: | Goetz, Daniel; Rodnyansky, Alexander |
| Abstract: | Do firms respond to cost shocks by reducing the quality of their products? Using microdata from a large Russian retailer that refreshes its product line twice-yearly, we document that higher quality products are more profitable than lower quality ones, but that the number of high quality products offered experiences a relative decrease after a large ruble devaluation in 2014. We show that rising firm costs-and not shrinking consumer incomes-explains the reallocation, and rationalize the data with a simple model that features consumer expenditure switching between high and low qualities. The reallocation to lower quality products reduces average pass-through by 15%. |
| Keywords: | crisis; Demand estimation; Devaluations; exchange rate pass-through; Quality |
| JEL: | E30 F14 F31 L11 L15 L16 L81 M11 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15248&r= |
| By: | Heathcote, Jonathan; Storesletten, Kjetil; Violante, Giovanni L. |
| Abstract: | We address this question in a heterogeneous-agent incomplete-markets model featuring exogenous idiosyncratic risk, endogenous skill investment, and flexible labor supply. The tax and transfer schedule is restricted to be log-linear in income, a good description of the US system. Rising inequality is modeled as a combination of skill-biased technical change and growth in residual wage dispersion. When facing shifts in the income distribution like those observed in the US, a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change. Overall, optimal progressivity is approximately unchanged between 1980 and 2016. We document that the progressivity of the actual US tax and transfer system has similarly changed little since 1980, in line with the model prescription. |
| Keywords: | inequality; InequalityMarkets; Labor Supply; optimal taxation; redistribution; Tax progressivity |
| JEL: | D30 E20 H20 I22 J22 J24 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15394&r= |
| By: | Guglielmo Maria Caporale; Anamaria Sova; Robert Sova |
| Abstract: | This paper analyses the short- and long-run effects of trade openness on financial development in a panel including data on 35 European countries over the period 2001-2019. For this purpose, it uses the PMG (pooled mean group) estimator for dynamic panels developed by Pesaran et al. (1999). The results differ depending on the income, governance and financial development level of the countries considered. In particular, it appears that in the middle-income countries trade openness tends to strengthen financial development in the long run but to have an adverse effect in the short run. By contrast, in the case of high-income countries with better institutions and a higher level of financial development, there is a positive and significant impact in the short run. Some policy implications of these findings are drawn. |
| Keywords: | trade openness, financial development, panel data, PMG estimator, Europe |
| JEL: | E61 F13 F15 C25 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9082&r= |
| By: | Marion Davin (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Mouez Fodha (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We study whether fiscal policies, especially public debt, can help to curb the macroeconomic and health consequences of epidemics. Our approach is based on three main features: we introduce the dynamics of epidemics in an overlapping generations model to take into account that old people are more vulnerable; people are more easily infected when pollution is high; public spending and public debt can be used to tackle the effects of epidemics. We show that fiscal policies can promote the convergence to a stable steady state with no epidemics. When public policies are not able to permanently eradicate the epidemic, public debt and income transfers could reduce the number of infected people and increase capital and GDP per capita. As a prerequisite, pollution intensity should not be too high. Finally, we define a household subsidy policy which eliminates income and welfare inequalities between healthy and infected individuals. |
| Keywords: | Epidemics,pollution,overlapping generations,public debt |
| Date: | 2021–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03221945&r= |
| By: | Marion Davin (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Mouez Fodha (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Thomas Seegmuller (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We study whether fiscal policies, especially public debt, can help to curb the macroeconomic and health consequences of epidemics. Our approach is based on three main features: we introduce the dynamics of epidemics in an overlapping generations model to take into account that old people are more vulnerable; people are more easily infected when pollution is high; public spending and public debt can be used to tackle the effects of epidemics. We show that fiscal policies can promote the convergence to a stable steady state with no epidemics. When public policies are not able to permanently eradicate the epidemic, public debt and income transfers could reduce the number of infected people and increase capital and GDP per capita. As a prerequisite, pollution intensity should not be too high. Finally, we define a household subsidy policy which eliminates income and welfare inequalities between healthy and infected individuals. |
| Keywords: | public debt,epidemics,pollution,overlapping generations |
| Date: | 2021–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-03222251&r= |
| By: | Eric Dehay (RIME-Lab - Recherche Interdisciplinaire en Management et Économie Lab - ULR 7396 - UA - Université d'Artois - Université de Lille); Nathalie Levy |
| Abstract: | Central banks underwent a "transparency revolution" during the 90s. Rather than considering it have been guided by a cost-benefit analysis, we assume that it is also a response imposed by a changing environment. The purpose of this text is to highlight the events or major trends that have brought about this revolution. A systematic review of the academic literature makes it possible to identify the concomitant themes that led to the questioning of the secret practices around central banks. It appears that the adoption of inflation targeting in the conduct of monetary policy and the creation of the euro, followed by the financial crisis and a growing general demand for greater transparency in the economic and political spheres, were the decisive events of the revolution. |
| Keywords: | Transparency,Central banks |
| Date: | 2020–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03223916&r= |
| By: | Eduardo Levy Yeyati (Universidad Torcuato Di Tella / The Brookings Institution); Federico Filippini (Universidad Torcuato Di Tella) |
| Abstract: | In this paper we provide an initial assessment of the economic losses related to the COVID pandemic inthree ways: based on growth revisions (as the output downgrade in 2020, and as the estimated cumulativeoutput loss over a 10-year period and based) and incorporating the cost associated with the fiscal stimuliand other, harder-to-asses aspects such as education or jobs. We find that, whereas the immediate GDP impact seems to favour poorer countries that were more modestly hit by the virus, the long-term economic cost is much larger (in the order of one to two GDPs) and correlate negatively with the country ´s initial per capita GDP, worsening global income inequality. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:aoz:wpaper:68&r= |
| By: | Lindokuhle Talent Zungu; Lorraine Greyling |
| Abstract: | A panel data analysis of financial inequality was conducted using the PSTR model to determine the threshold level at which excessive financial development worsens inequality. The results reveal evidence of a nonlinear effect between financial development and income inequality where the optimal level of financial development is found to be 19% as a share of GDP above which financial development increases inequality in African countries. The findings combine into a U-shape relationship, in line with other research in African studies. In this particular case, policy-makers are challenged to come up with policies that enforce the distributive effects of financial development with a view to share wealth equitably. |
| Keywords: | Financial development; income inequality; PSTR model |
| JEL: | O16 O11 E44 C33 |
| Date: | 2021–02 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:853&r= |
| By: | Budnik, Katarzyna; Dimitrov, Ivan; Groß, Johannes; Jančoková, Martina; Lampe, Max; Sorvillo, Bianca; Stular, Anze; Volk, Matjaz |
| Abstract: | This paper looks at the impact of mitigation policies implemented by supervisory and macroprudential authorities as well as national governments in the euro area during the coronavirus (COVID-19) pandemic to support lending to the real economy. The impact assessment concerns joint, and individual, effect of supervisory measures introduced by the ECB Banking Supervision, a reduction in macroprudential buffers put forward by national macroprudential authorities, and public moratoria and guarantee schemes. The analysis has been conducted in the first half of 2020, in a situation of high uncertainty about how the crisis will develop in the future. Against this backdrop, it proposes a method of addressing such uncertainty by assessing the impact of policies across a full range of scenarios. We find that the supervisory, macroprudential and government policies should have helped to maintain higher lending to the non-financial private sector (around 5% higher than lending in the absence of policy measures) and, in particular, to non-financial corporations (12% higher than lending in the absence of policy measures), preventing further amplification of the recession via the banking sector. The national and supervisory and macroprudential actions have reinforced each other, and have been jointly able to affect a broader share of the banking sector. JEL Classification: E37, E58, G21, G28 |
| Keywords: | banking sector, COVID-19, impact assessment, real-financial feedback mechanism |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021257&r= |
| By: | Papoutsi, Melina |
| Abstract: | This paper presents evidence that personal relationships between corporate borrowers and bank loan officers improve the outcomes of loan renegotiation. Analysing a bank reorganization in Greece in the mid-2010s, I find that firms that experience an exogenous interruption in their loan officer relationship confront three consequences: one, the firms are less likely to renegotiate their loans; two, conditional on renegotiation, the firms are given tougher loan terms; and three, the firms are more likely to alter their capital structure. These results point to the importance of lending relationships in mitigating the cost of distress for borrowers in loan renegotiations. JEL Classification: G21, L14, E44, E58, O16 |
| Keywords: | bank branch closures, corporate credit, loan officers, loan renegotiation |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212553&r= |
| By: | Huang, Jingong; Zenou, Yves |
| Abstract: | This paper develops a multi-sector endogenous growth model that includes an innovation network, which captures intrasectoral as well as heterogeneous intersectoral knowledge flows. We analyze the importance of sectors (nodes) and directed knowledge linkages (edges) in the innovation network by their contribution to the growth of knowledge in this economy. We show that the growth rate of knowledge is equal to the spectral radius of the innovation network. We also demonstrate that a sector's importance to growth (``key sectors'') is related to its positions in both the downstream and upstream technology network. Finally, the importance of a knowledge linkage is characterized by both the upstream centrality of its source sector, the downstream centrality of its target sector and the strength of knowledge flows from the source sector to the target sector. |
| Keywords: | Endogenous Growth; innovation networks; Key players |
| JEL: | D85 E2 O4 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15281&r= |
| By: | Eichenbaum, Martin; Godinho de Matos, Miguel; Lima, Francisco; Rebelo, Sérgio; Trabandt, Mathias |
| Abstract: | We study how people react to small probability events with large negative consequences using the outbreak of the COVID-19 epidemic as a natural experiment. Our analysis is based on a unique administrative data set with anonymized monthly expenditures at the individual level. We find that older consumers reduced their spending by more than younger consumers in a way that mirrors the age dependency in COVID-19 case-fatality rates. This differential expenditure reduction is much more prominent for high-contact goods than for low-contact goods and more pronounced in periods with high COVID-19 cases. Our results are consistent with the hypothesis that people react to the risk of contracting COVID-19 in a way that is consistent with a canonical model of risk taking. |
| Keywords: | COVID-19; risk |
| JEL: | E21 I10 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15373&r= |
| By: | Ilan Noy; Toshihiro Okubo; Eric Strobl; Thomas Tveit |
| Abstract: | We investigate the fiscal impacts of earthquakes in Japan. In contrast with earlier papers from elsewhere which examine national level aggregate spending, we are able to provide a detailed examination of separate budget categories within the local governments’ fiscal accounts. We do this using detailed line-budget expenditure data, and by comparing regions and towns affected and unaffected by the damage from earthquakes. Besides the obvious - that government spending increases in the short-term (one year) after a disaster event - the results we present suggest that the share of public spending on disaster relief, at the prefecture level, increases significantly, but with no corresponding change in the other budget lines. In contrast, at the lower administrative units we observe a decrease in the share of spending going to finance other priorities. For the bigger cities, we observe a decrease in the share of spending targeting education, while for the smaller towns, we find that spending on construction and servicing public debt goes down. This evidence suggests that while at the prefecture level fiscal policy-making is robust enough to prevent presumably unwanted declines in public services, the same cannot be said for the city/town level. |
| Keywords: | fiscal costs, earthquakes, Japan |
| JEL: | H84 Q54 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9070&r= |
| By: | Plessen-Mátyás, Katharina; Kaufmann, Christoph; von Landesberger, Julian |
| Abstract: | This paper investigates whether the funding behaviour of euro area debt management offices (DMOs) changed with the start of the ECB’s Public Sector Purchase Programme (PSPP). Our results show that (i) lower yield levels and (ii) PSPP purchases supported higher maturities at issuance. The former indicates a behaviour of “locking in low rates for longer”, while the latter suggests the existence of an additional “demand effect” of the PSPP on DMO strategies beyond the PSPP’s effect via yields. The combined impact of the PSPP via these channels amounts to maturity extensions at issuance of about one year in our estimation, which compares to the average issuance maturity for Germany, France, Italy and Spain before the PSPP of four years. Our finding that DMOs extend maturities when funding conditions ease invites further work on the economic implications of public debt management during the PSPP and its relevance for monetary policy transmission. JEL Classification: E52, E58, E63, H63 |
| Keywords: | central bank asset purchases, public debt management, sovereign debt maturity structure, unconventional monetary policy |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20212552&r= |
| By: | Ofori, Isaac Kwesi; Obeng, Camara Kwasi; Mwinlaaru, Peter Yeltulme |
| Abstract: | Efforts to spur growth in sub-Sahara Africa have been intensified amid structural and institutional constraints. Tax revenue, the chief source of funding for developmental purposes in SSA remains low and unstable. In fact, the SSA sub-region finds it difficult generating tax revenue up to 20 per cent of GDP. One factor that has not caught the attention of policymakers in terms of its impact on tax revenue performance is exchange rate volatility. Using macrodata spanning 1984 to 2017 for 21 countries, we provide empirical evidence from a panel autoregressive distributed lag technique to show that exchange rate volatility is directly harmful to tax revenue performance, and indirectly through trade openness. |
| Keywords: | Cointegration,Exchange Rate Volatility,GARCH,Sub-Sahara Africa,Tax Revenue |
| JEL: | E6 F14 F31 F4 F6 H2 O55 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:233984&r= |
| By: | Bacchetta, Philippe; Chikhani, Pauline |
| Abstract: | The Swedish krona depreciated sharply between 2013 and early 2020 but standard models are unable to explain this depreciation. This paper reviews the experience of the krona. By estimating an "equilibrium" value for the real exchange rate, we confirm a growing undervaluation after 2014. The depreciation could initially be explained by a decline in interest rates and then by quantitative easing and the Riksbank communication regarding the krona. However, monetary policy cannot explain the extent of the depreciation nor the long depreciation period of seven years. We then review various complementary explanations proposed in the literature including, imperfect information, financial frictions, the role of financial shocks and the convenience yield. Many of these elements can plausibly explain the weakness of the krona, but cannot be quantified. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15468&r= |
| By: | Hassan, Tarek Alexander; Zhang, Tony |
| Abstract: | This article reviews the literature on currency and country risk with a focus on its macroeconomic origins and implications. A growing body of evidence shows countries with safer currencies enjoy persistently lower interest rates and a lower required return to capital. As a result, they accumulate relatively more capital than countries with currencies international investors perceive as risky. Whereas earlier research focused mainly on the role of currency risk in generating violations of uncovered interest parity and other financial anomalies, more recent evidence points to important implications for the allocation of capital across countries, the efficacy of exchange rate stabilization policies, the sustainability of trade deficits, and the spillovers of shocks across international borders. |
| Keywords: | Capital Flows; carry trade; Country risk; currency risk; Forward premium puzzle; uncovered interest parity |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15313&r= |
| By: | de Vries, Gaaitzen J. (University of Groningen, The Netherlands); Gentile, Elisabetta (Asian Development Bank); Miroudot, Sébastien (Organisation for Economic Co-operation and Development); Wacker , Konstantin M. (University of Groningen, The Netherlands) |
| Abstract: | This paper examines the impact of industrial robots on jobs. We combine data on robot adoption and occupations by industry in 37 economies for the period 2005–2015. We exploit differences across industries in technical feasibility—defined as the industry’s share of tasks replaceable by robots—to identify the impact of robot usage on employment. The data allow us to differentiate effects by the routine intensity of employment. We find that a rise in robot adoption relates significantly to a fall in the employment share of routine manual task-intensive jobs. This relation is observed in high-income economies, but not in emerging market and transition economies. |
| Keywords: | employment; occupations; robots; tasks |
| JEL: | E23 J23 O30 |
| Date: | 2021–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbewp:0619&r= |
| By: | Cornelli, Giulio; Frost, Jon; Gambacorta, Leonardo; Rau, Raghavendra; Wardrop, Robert; Ziegler, Tania |
| Abstract: | Fintech and big tech platforms have expanded their lending around the world. We estimate that the flow of these new forms of credit reached USD 223 billion and USD 572 billion in 2019, respectively. China, the United States and the United Kingdom are the largest markets for fintech credit. Big tech credit is growing fast in China, Japan, Korea, Southeast Asia and some countries in Africa and Latin America. Cross-country panel regressions show that such lending is more developed in countries with higher GDP per capita (at a declining rate), where banking sector mark-ups are higher and where banking regulation is less stringent. Fintech credit is larger where there are fewer bank branches per capita. We also find that fintech and big tech credit are more developed where the ease of doing business is greater, and investor protection disclosure and the efficiency of the judicial system are more advanced, the bank credit-to-deposit ratio is lower and where bond and equity markets are more developed. Overall, alternative credit seems to complement other forms of credit, rather than substitute for them. |
| Keywords: | big tech; credit; data; digital innovation; Fintech; technology |
| JEL: | E51 G23 O31 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15357&r= |
| By: | Isaac K. Ofori (University of Insubria, Varese, Italy); Camara K. Obeng (University of Cape Coast, Cape Coast, Ghana); Peter Y. Mwinlaaru (University of Cape Coast, Cape Coast, Ghana) |
| Abstract: | Efforts to spur growth in sub-Sahara Africa have been intensified amid structural and institutional constraints. Tax revenue, the chief source of funding for developmental purposes in SSA remains low and unstable. In fact, the SSA sub-region finds it difficult generating tax revenue up to 20 per cent of GDP. One factor that has not caught the attention of policymakers in terms of its impact on tax revenue performance is exchange rate volatility. Using macrodata spanning 1984 to 2017 for 21 countries, we provide empirical evidence from a panel autoregressive distributed lag technique to show that exchange rate volatility is directly harmful to tax revenue performance, and indirectly through trade openness. |
| Keywords: | Cointegration, Exchange Rate Volatility, GARCH, Sub-Sahara Africa, Tax Revenue |
| JEL: | E5 H2 H7 F6 O4 Q55 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:agd:wpaper:21/031&r= |
| By: | Francois J Stofberg; Jan H van Heerden,; Heinrich R Bohlmann |
| Abstract: | After showing that the bulk of government expenditure is unproductive, we consider the impact of an alternative fiscal policy mix in South Africa. The alternative suggests freezing the real government wage bill for five years and using the savings generated by this decision to increase spending on a specific, productive and wealth-creative expenditure item, aggregate investments. By indirectly contributing to greater levels of investments we show how government can generate better levels of economic performance and social development. To analyse the economic consequences of the suggested fiscal policy mix we use TERM-SA a dynamic, regional computable general equilibrium model of South Africa. We also add additional features to provide more accurate and detailed results. Our results show that a wage freeze can increase both real GDP (5.9%) and employment (456,00 jobs) in the long-term. |
| Keywords: | Computable General Equilibrium Models, Households, Social Accounting Matrix, Regional Economics, Policy Modelling |
| JEL: | C68 H31 E16 L91 R10 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:829&r= |
| By: | Comin, Diego; Johnson, Robert |
| Abstract: | Did trade integration suppress inflation in the United States? We say no, in contradiction to the conventional wisdom. Our answer leverages two basic facts about the rise of trade: offshoring accounts for a large share of it, and it was a long-lasting, phased-in shock. Incorporating these features into a New Keynesian model, we show trade integration was inflationary. This result continues to hold when we extend the model to account for US trade deficits, the pro-competitive effects of trade on domestic markups, and cross-sector heterogeneity in trade integration in a multisector model. Further, using the multisector model, we demonstrate that neither cross-sector evidence on trade and prices, nor aggregate time series price level decompositions are informative about the impact of trade on inflation. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15387&r= |
| By: | Bilbiie, Florin Ovidiu; Monacelli, Tommaso; Perotti, Roberto |
| Abstract: | We discuss the main fiscal policy issues in the Eurozone, focusing on two that are at the core of the current debate. The first is that, right from the start, the government deficit and debt were the key objects of contention in the debate that led to the creation of the Eurozone, and they still are. The second issue is that a currency union implies the loss of a country-specific instrument, a national monetary policy. This puts a higher burden on fiscal policy as a tool to counteract shocks, a burden that might be even heavier now that the European Central Bank has arguably reached the Zero Lower Bound. Two obvious solutions are mutual insurance (or risk sharing, we use the two expressions interchangeably) between countries; and a centralized stabilization policy. Yet both have been remarkably difficult to come by. |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15382&r= |
| By: | Fernández-Villaverde, Jesús; Jones, Charles I |
| Abstract: | This paper combines data on GDP, unemployment, and Google's COVID-19 Community Mobility Reports with data on deaths from COVID-19 to study the macroeconomic outcomes of the pandemic. We present results from an international perspective using data at the country level as well as results for individual U.S. states and key cities throughout the world. The data from these different levels of geographic aggregation offer a remarkably similar view of the pandemic despite the substantial heterogeneity in outcomes. Countries like Korea, Japan, Germany, and Norway and cities such as Tokyo and Seoul have comparatively few deaths and low macroeconomic losses. At the other extreme, New York City, Lombardy, the United Kingdom, and Madrid have many deaths and large macroeconomic losses. There are fewer locations that seem to succeed on one dimension but suffer on the other, but these include California and Sweden. The variety of cases potentially offers useful policy lessons regarding how to use non-pharmaceutical interventions to support good economic and health outcomes. |
| Keywords: | COVID-19; Macroeconomic outcomes; Mobility Reports; Mortality |
| JEL: | E10 E30 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15393&r= |
| By: | Tracey, Belinda (Bank of England); Van Horen, Neeltje (Bank of England) |
| Abstract: | This paper shows that relaxing borrowing constraints positively affects household consumption in addition to stimulating housing market activity. We focus on the UK Help-to-Buy (HTB) program, which provided a sudden relaxation of the down payment constraint by facilitating home purchases with only a 5% down payment. Our research design exploits geographic variation in exposure to HTB and uses administrative data on mortgages and car sales in combination with household survey data. We estimate that the program increased total home purchases by 11%, and the increase was driven almost entirely by first-time and young buyers. Regions that were more exposed to the program experienced a rise in non-durable consumption unrelated to the home and in loan-financed car purchases, in addition to an increase in home-related expenditures. These results are independent of changes in regional house prices. Our findings point to a further link between the housing market and household consumption that does not operate through the home purchase and housing wealth channels. |
| Keywords: | Borrowing constraints; consumption; housing market; mortgage market |
| JEL: | E21 G21 R21 R28 |
| Date: | 2021–05–07 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0919&r= |
| By: | Ortigueira, Salvador (Washington State University); Siassi, Nawid (TU Wien) |
| Abstract: | We assess the Family Security Act---a plan presented by Senator Mitt Romney (R-UT) on February 4, 2021 to reform the tax/transfer system---in terms of its efficacy to achieve the stated objectives of increasing marriage rates and cutting child poverty at no cost to the government. The assessment is carried out through a microsimulation approach, using a dynamic model of savings, labor supply, household formation, and marital status. We find that while the plan would be highly effective at increasing marriage, it would reduce child poverty at the expense of increasing poverty among single-mother families and child deep poverty. Furthermore, the plan would entail a substantial cost to taxpayers. |
| Keywords: | Family Security Act; household decisions; cohabitation and marriage; poverty. |
| JEL: | E21 H24 |
| Date: | 2021–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:wsuwpa:2021_001&r= |
| By: | Jean-Louis Combes (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne); Pierre Lesuisse (CERDI - Centre d'Études et de Recherches sur le Développement International - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne) |
| Abstract: | In the process of EU integration, toward the EA accession, we try to understand, how changes in exchange rate regime, attributed to the switch through the ERM-II and to the EA accession, influence the dynamic between inflation and unemployment, i.e., shock on the Phillips curve coefficient. We look at a panel of countries, in the CEECs over the last twenty years, using a recent work from McLeay and Tenreyro (2020), to clarify the impact of loosing the monetary autonomy. Being under a pegged regime is not associated with a flattened Phillips curve. However, after the EA accession, the Phillips curve coefficient becomes not significant. This result is confirmed, looking at other small EA countries; while "economic leaders" tend to maintain a significant trade-off between inflation and unemployment. Using recent work from |
| Keywords: | Phillips curve,European Monetary Union,Panel |
| Date: | 2021–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03216478&r= |