|
on Macroeconomics |
|
Issue of 2021‒09‒13
seventy papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Michalis Nikiforos; Marcio Santetti; Rudiger von Arnim |
| Abstract: | This paper provides a theoretical and empirical reassessment of supermultiplier theory. First, we show that, as a result of the passive role it assigns to investment, the Sraffian supermultiplier (SSM) predicts that the rate of utilization leads the investment share in a dampened cycle or, equivalently, that a convergent cyclical motion in the utilization-investment share plane would be counterclockwise. Second, impulse response functions from standard recursive vector autoregressions (VAR) for postwar US samples strongly indicate that the investment share leads the rate of utilization, or that these cycles are clockwise. These results raise questions about the key mechanism underlying supermultiplier theory. |
| Keywords: | Sraffian Supermultiplier; Cyclical Growth; (Induced) Investment; Desired Rate of Capacity Utilization |
| JEL: | E12 E24 E25 E32 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_993&r= |
| By: | Chengcheng Jia; Jing Cynthia Wu |
| Abstract: | We study the implications of the Fed's new policy framework of average inflation targeting (AIT) and its ambiguous communication. We show that AIT improves the trade-off between inflation and real activity by tilting the Phillips curve in a favorable way. To fully utilize this feature and maximize social welfare, the central bank has the incentive to deviate from AIT and implement inflation targeting ex post. Next, we rationalize the central bank's ambiguous communication about the horizon over which it averages inflation. Ambiguous communication, together with uncertainty about economic fundamentals, helps the central bank to gain credibility and improve welfare in the long run, in spite of the time-inconsistent nature of AIT. |
| Keywords: | average inflation targeting; time inconsistency; ambiguous communication |
| JEL: | E31 E52 E58 |
| Date: | 2021–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:93039&r= |
| By: | Pablo Ottonello; Diego J. Perez; Paolo Varraso |
| Abstract: | We study the design of macroprudential policies based on quantitative collateral-constraint models. We show that the desirability of macroprudential policies critically depends on the specific form of collateral used in debt contracts: While inefficiencies arise when current prices affect collateral---a frequent benchmark used to guide policies---they do not when only future prices affect collateral. Since the microfoundations and quantitative predictions of models with future-price collateral constraints do not appear less plausible than those using current prices, we conclude that additional empirical work is essential for the use of these models in macroprudential policy design. |
| JEL: | E32 E44 F32 F36 F38 G01 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29204&r= |
| By: | Maëlle VAILLE |
| Abstract: | Central banks’ balance sheet policies, while intended to address ?nancial market dislocations and stimulate the economy, may have unintended persistent e?ects on systemic risk. Using a structural bayesian vector autoregressive model, this paper estimates the impacts of exogenous innovations to the central banks’ balance sheet on the aggregate systemic risk in the euro area, the United States and Japan. Our results suggest that these policies have positive e?ects on ?nancial stability in the short and medium term and seems to have no e?ects in the long term. Moreover, we study the e?ects of central balance sheet policies shocks on ?nancial institutions’ systemic risk through a panel VAR and highlight the role of leverage in the transmission of unconventional monetary policy to ?nancial ?rms’ systemic risk. |
| Keywords: | balance sheet policies, srisk, structural BVAR, zero and sign restrictions, leverage |
| JEL: | C32 C33 E44 E52 E58 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:grt:bdxewp:2021-15&r= |
| By: | Josué Diwambuena (Free University of Bozen-Bolzano, Italy); Raquel Fonseca (ESG-University of Quebec at Montreal and CIRANO); Stefan Schubert (Free University of Bozen-Bolzano, Italy) |
| Abstract: | This paper investigates how Italian labour market institutions influence business cycle fluctuations. We apply a DSGE model that features Italian labour market rigidities and we estimate the latter on Italian data using Bayesian techniques to assess the effects of demand, supply, and labour market shocks on the macroeconomy, and to measure their significance for economic fluctuations. Our results show: First, technology, time preference and wage bargaining shocks are key drivers of economic fluctuations across horizons. Second, matching efficiency and wage bargaining shocks are significant sources of unemployment and vacancies fluctuations but their role is limited for output fluctuations. Third, labour market relaxation policies have only marginally contributed to the reduction in unemployment. Last, accounting for wage rigidities influences labour market dynamics and helps the model to fit data well. We, therefore, urge policymakers to support additional changes in labour market institutions. |
| Keywords: | DSGE; Labour market frictions; Bayesian estimation; Italy. |
| JEL: | E24 E32 C51 C52 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:bzn:wpaper:bemps88&r= |
| By: | José Carlos Coelho; José Alves |
| Abstract: | This paper assesses the relationship between inequality and growth for 34 advanced OECD countries between 1990 and 2019 using recent Gini coefficients from Solt (2020) database and through a dynamic panel technique of two-step system GMM (Generalized Method of Moments). We find that the Gini coefficient of disposable income has a positive and significant impact, at a 10% level of significance, on subsequent economic growth over the five-year period. This result is explained based on the fiscal policy and saving channels, and also through the role of investment. More specifically, inequality translates into lower shares of public consumption and direct taxation on GDP, which boosts economic growth. Furthermore, inequality encourages saving and stimulates investment, which results in greater growth of the income per capita level. |
| Keywords: | inequality; economic growth; transmission channels; fiscal policy; saving; investment; system GMM |
| JEL: | D63 E21 E22 E62 O47 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp01942021&r= |
| By: | Marente Vlekke (CPB Netherlands Bureau for Economic Policy Analysis); Martin Mellens (CPB Netherlands Bureau for Economic Policy Analysis); Siem Jan Koopmans (VU) |
| Abstract: | We assess the stability of the coefficient on the unemployment gap in various linear dynamic Phillips curve models. We allow the coefficient on the unemployment gap and the other variables in our model to be time-varying, so that we can monitor the importance of the Phillips curve over time. We compare the effects of different measures for inflation and inflation expectations on our estimation results. In our analysis, we use state space methods and adopt a practical approach to Bayesian estimation with feasible testing and diagnostic checking procedures. Empirical results are presented for the United States and the five largest euro area economies. Our main conclusion is that in the United States the Phillips curve for headline inflation has remained empirically relevant over the years while there are periods when its impact has been low. For measures of core inflation we find a declining Phillips curve. In the euro area the strength of the relationship differs per country and over time, but has overall been weak and volatile in the past three decades. For both the United States and the euro area countries, we find little evidence of the “anchored expectations"-hypothesis. |
| JEL: | C18 C32 C52 E24 E31 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:416&r= |
| By: | Kovalenko, Tim |
| Abstract: | Uncertainty shocks are found to adversely affect labor market outcomes. Most studies attribute labor adjustments costs for the propagation of macroeconomic uncertainty to the labor market. Given that large establishments in Germany face higher labor adjustments cost, they should be affected more strongly by these shocks. Therefore, this paper studies the effects of uncertainty shocks on employment adjustments in large and small establishments employing four structural vector auto-regressive models with quarterly data for Germany in the period 1991-2014. These four models estimate effects of uncertainty shocks on employment, worker flows, job flows as well as worker churn, both for establishments with less than 100 and with at least 100 employees. The results suggest that uncertainty shocks induce considerable employment fluctuations in large establishments, while they have barely an effect on small establishments. Furthermore, large establishments adjust their labor input in response to an uncertainty shock by delaying the replacement of workers who leave these establishments. |
| Keywords: | Uncertainty Shocks,Employment,Worker Flows,Job Flows,Worker Churn,Establishment Size,Structural Vector Auto-Regression,Germany |
| JEL: | E24 E32 J63 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:faulre:119&r= |
| By: | Elgin, Ceyhun; Kose, M. Ayhan; Ohnsorge, Franziska; Yu, Shu |
| Abstract: | We study the degree of synchronization between formal- and informal-economy business cycles. Using a comprehensive database of informal activity that covers a wide range of informality measures from almost 160 countries over the 1990-2018 period, we report two major results. First, fluctuations in informal-sector output are strongly positively correlated with those in formal-sector output. In contrast, fluctuations in informal employment are largely uncorrelated with those in formal-sector output. Second, movements in the formal economy tend to spillover to the informal economy. Using a novel set of instrumental variables, we show that fluctuations in formal-sector output “cause” movements in informal-sector output. |
| Keywords: | Informal economy, self-employment, business cycle. |
| JEL: | E26 E32 J46 O17 |
| Date: | 2021–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109492&r= |
| By: | Gee Hee Hong; Matthew Klepacz; Ernesto Pasten; Raphael Schoenle |
| Abstract: | This paper evaluates the informativeness of eight micro pricing moments for monetary non-neutrality. Frequency of price changes is the only robustly informative moment. The ratio of kurtosis over frequency is significant only because of frequency, and insignificant when non-pricing moments are included. Non-pricing moments are additionally informative about monetary non-neutrality, indicating potential omitted variable bias and the inability of pricing moments to serve as sufficient statistics. In contrast to existing theoretical work, this ratio has an ambiguous relationship with monetary non-neutrality in a quantitative menu cost model. We show which modeling ingredients explain this discrepancy, providing guidance on modeling choices. |
| Keywords: | Price-setting; menu cost; micro moments; sufficient statistics |
| JEL: | E13 E31 E32 |
| Date: | 2021–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:93012&r= |
| By: | Ceyhun Elgin (Columbia University and Bogazici University); M. Ayhan Kose (World Bank, Prospects Group; Brookings Institution; CEPR; and CAMA); Franziska Ohnsorge (World Bank, Prospects Group; CEPR; and CAMA); Shu Yu (World Bank) |
| Abstract: | We study the degree of synchronization between formal- and informal-economy business cycles. Using a comprehensive database of informal activity that covers a wide range of informality measures from almost 160 countries over the 1990-2018 period, we report two major results. First, fluctuations in informal-sector output are strongly positively correlated with those in formal-sector output. In contrast, fluctuations in informal employment are largely uncorrelated with those in formal-sector output. Second, movements in the formal economy tend to spillover to the informal economy. Using a novel set of instrumental variables, we show that fluctuations in formal-sector output “cause” movements in informal-sector output. |
| Keywords: | Informal economy, self-employment, business cycle. |
| JEL: | E26 E32 J46 O17 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:2115&r= |
| By: | Benjamin Caswell |
| Abstract: | Shocks to the marginal efficiency of investment (MEI) play a significant role in business cycle fluctuations. However, in standard quantitative models, positive (negative) MEI shocks tend to cause consumption to fall (rise) on impact while investment rises (falls). This conflicts with the well-established observation that consumption and investment are both procyclical and move together over the business cycle. This paper demonstrates that MEI shocks can generate positive comovement between consumption and investment in a standard RBC framework through the inclusion of a time-varying labour wedge. This allows for tractable analytical expressions, and straightforward graphical interpretations, which describe the subset of the parameter space where positive comovement is achieved. |
| Keywords: | comovement problem, investment shocks, labour wedge, business cycles |
| JEL: | E27 E32 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:335109180&r= |
| By: | Eusepi, Stefano; Gibbs, Chris; Preston, Bruce |
| Abstract: | We study zero interest-rate policy in response to a large negative demand shock when long-run expectations can fall over time. Because falling expectations make monetary policy less effective by raising real interest rates, the optimal forward guidance policy makes large front-loaded promises to stabilize expectations. Policy is too stimulatory in the event of transitory shocks, but provides insurance against persistent shocks. The optimal policy is well-approximated by a constant calendar-based forward guidance, independent of the shock’s realised persistence. The insurance property distinguishes our paper from other bounded rationality papers that solve the forward guidance puzzle and generates important quantitative differences. |
| JEL: | E32 D83 D84 |
| Date: | 2021–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2021_011&r= |
| By: | Mönch, Emanuel; Stein, Tobias |
| Abstract: | The equity premium follows a pronounced v-shape pattern around the beginning of recessions. It sharply drops into negative territory just before business cycle peaks and then strongly recovers as the recession unfolds. Recessions are preceded by an inverted yield curve. Thus probit models using the term spread as predictor time the beginning of recessions well. We show that such model-implied recession probabilities strongly improve equity premium prediction out-of-sample. We document a structural break in the mean of the term spread in 1982. When correcting for this break, the forecast performance further strengthens, outperforming other recently proposed benchmark predictors. |
| Keywords: | Recession predictability,return predictability,business cycle,probit model,term spread |
| JEL: | E32 E37 C53 G11 G17 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:252021&r= |
| By: | Elgin, Ceyhun; Kose, M. Ayhan; Ohnsorge, Franziska; Yu, Shu |
| Abstract: | This paper introduces a comprehensive database of informal economic activity. The database focuses on measures that have strong cross-country and over time coverage: it includes both model-based and survey-based measures of informality and covers more than 160 economies for the period 1990-2018. The paper illustrates two applications of the database. First, it distills stylized facts of informal activity, including its declining trend and pervasiveness in emerging market and developing economies (EMDEs). Second, it documents the cyclical features of the informal economy. Overall, informal economy recessions (recoveries) do not differ significantly from those of formal economy. Like formal-economy business cycles, informal-economy business cycles tend to be shallower in advanced economies than in EMDEs. Informal employment in both advanced economies and EMDEs appears to be largely acyclical. |
| Keywords: | Informal economy, self-employment, employment, output, business cycles. |
| JEL: | E26 E32 J46 O17 |
| Date: | 2021–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109490&r= |
| By: | Asgeir Danielsson |
| Abstract: | In this paper we discuss the relationships between the CPI in Iceland, the unit labour cost, and the price of foreign goods, and their role in equations for forecasting inflation. We find that the logs of these variables are cointegrated, the cointegrating vectors are stable over many different data periods, and the coefficients satisfy the homogeneity condition. On the other hand, the coefficients in regressions of log difference of the CPI on log differences of the other variables, and a constant, are unstable, and for data for the last two decades, the homogeneity condition is always rejected. The coefficient for changes in unit labour cost, the price of the most important cost item, is often insignificant, while the constant, which shouldn‘t be in the equation, is frequently highly significant. It is shown that the estimates of coefficients in the equation in log differences of the variables depend on the coefficients of correlations between the variables, and their standard deviations, which have diverged very much since the turn of the century. Large standard deviations of changes in unit labour cost, and especially of changes in the price of foreign goods, compared to standard deviations of changes in the CPI, contribute to lower coefficient estimates, and to the significance of the constant. In the paper we discuss how the long-run, cointegrated, relationship between the logs of the variables can be used to obtain valuable information for forecasting the rate of inflation. We also present estimation of an equation for the log difference in CPI where the error-correction term is the estimated error of an AR-equation for the errors from the equation in logs. |
| JEL: | C13 E31 E44 E52 E65 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp87&r= |
| By: | Adam, Klaus; Gautier, Erwan; Santoro, Sergio; Weber, Henning |
| Abstract: | Using micro price data underlying the Harmonized Index of Consumer Prices in France, Germany and Italy, we estimate relative price trends over the product life cycle and show that minimizing price and mark-up distortions in the presence of these trends requires targeting a significantly positive inflation target. Relative price trends shift the optimal in ation target up from a level of zero percent, as suggested by the standard sticky price literature, to a range of 1.1%- 2.1% in France, 1.2%-2.0% in Germany, 0.8%-1.0% in Italy, and 1.1-1.7% in the Euro Area (three country average). Differences across countries emerge due to systematic differences in the strength of relative price trends. Other considerations not taken into account in the present paper may push up the optimal inflation targets further. The welfare costs associated with targeting zero inflation turn out to be substantial and range between 2.1% and 4.5% of consumption in present-value terms. |
| Keywords: | Optimal inflation target,micro price trends,welfare |
| JEL: | E31 E52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:262021&r= |
| By: | Jiranyakul, Komain |
| Abstract: | Contributing to the controversial issue of the impact of government spending on economic growth, this paper shows that government spending has a long-run impact in stimulating aggregate output in Thailand during the floating exchange rate regime. The results reveal that the long-run relationship between aggregate output, government expenditures, and private consumption is stable. Based on the quarterly dataset from1997Q3 to 2019Q4, the results suggest that expansionary fiscal policy is effective under the floating exchange rate regime. Furthermore, the traditional version of Wagner’s law is supported since an expansion in aggregate output causes government expenditure to increase. Therefore, the findings in this paper support both the Keynesian hypothesis and Wagner’s law. |
| Keywords: | Government expenditures, real GDP, cointegration, causality |
| JEL: | E62 |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109585&r= |
| By: | Sangyup Choi (Yonsei University); Junhyeok Shin (Yonsei University) |
| Abstract: | During the recent COVID-19 pandemic, many commonalities shared by Bitcoin and gold raise the question of whether Bitcoin can hedge inflation or provide a safe haven as gold often does. By estimating a Vector Autoregression (VAR) model, we provide systematic evidence on the relationship among inflation, uncertainty, and Bitcoin and gold prices. Bitcoin appreciates against inflation (or inflation expectation) shocks, confirming its inflation-hedging property claimed by investors. However, unlike gold, Bitcoin prices decline in response to financial uncertainty shocks, rejecting the safe-haven quality. Interestingly, Bitcoin prices do not decrease after policy uncertainty shocks, partly consistent with the notion of Bitcoin’s independence from government authorities. We also find an interesting asymmetry in the drivers of Bitcoin price dynamics between the bullish and bearish markets. The main findings hold with or without the COVID-19 pandemic episode. |
| Keywords: | Cryptocurrencies; Bitcoin; inflation-hedging; safe-haven; gold; COVID-19 |
| JEL: | E41 E44 F31 G10 |
| Date: | 2021–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:cth:wpaper:gru_2021_030&r= |
| By: | Ceyhun Elgin (Columbia University and Bogazici University); M. Ayhan Kose (World Bank, Prospects Group; Brookings Institution; CEPR; and CAMA); Franziska Ohnsorge (World Bank, Prospects Group; CEPR; and CAMA); Shu Yu (World Bank) |
| Abstract: | This paper introduces a comprehensive database of informal economic activity. The database focuses on measures that have strong cross-country and over time coverage: it includes both model-based and survey-based measures of informality and covers more than 160 economies for the period 1990-2018. The paper illustrates two applications of the database. First, it distills stylized facts of informal activity, including its declining trend and pervasiveness in emerging market and developing economies (EMDEs). Second, it documents the cyclical features of the informal economy. Overall, informal economy recessions (recoveries) do not differ significantly from those of formal economy. Like formal-economy business cycles, informal-economy business cycles tend to be shallower in advanced economies than in EMDEs. Informal employment in both advanced economies and EMDEs appears to be largely acyclical. |
| Keywords: | Informal economy, self-employment, employment, output, business cycles. |
| JEL: | E26 E32 J46 O17 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:2114&r= |
| By: | Firmin Doko Tchatoka (School of Economics & Public Policy, University of Adelaide); Qazi Haque (School of Economics & Public Policy, University of Adelaide) |
| Abstract: | We shed new light on the effects of monetary policy shocks in the US. Gertler and Karadi (2015) suggest that movements in credit costs may result in substantial impact of monetary policy shocks on economic activity. Using the proxy SVAR framework, we show that once the Volcker disination period is left out and one focuses on the post-1984 period, monetary policy shocks have no signfcant effects on output, despite large movements in credit costs. Our finding is robust to weak identfcation and alternative measure of economic activity. |
| Keywords: | Monetary policy shocks,Proxy-SVAR, Weak identifcation, Output dynamics. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2021-02&r= |
| By: | Chao Gu; Guido Menzio; Randall Wright; Yu Zhu |
| Abstract: | During the financial crisis apparently centralized markets continued to function while trade in OTC markets froze. We use search-and-bargaining theory to ascertain conditions that allow trade to temporarily freeze in decentralized markets, focusing on the roles of liquidity and self-fulfilling prophecies. We show standard models can have recurrent, belief-driven hot and cold spells, but not freezes and thaws. A simple specification that has freezes assumes negative returns. A more realistic one incorporates information frictions (costly asset-quality verification). Another uses different frictions to get credit freezes. We also discuss policy implications, and go into detail on the nature of OTC markets. |
| JEL: | D53 D83 E30 E44 E52 G14 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29210&r= |
| By: | Sascha Mierzwa (Philipps-Universitaet Marburg) |
| Abstract: | I study the spill-over effects of legislated discretionary tax changes in the United States, Germany, and the United Kingdom to 11 Eurozone countries for the period 1980Q1–2018Q4 employing Local Projections (Jordà , 2005). In general, I find spillovers from US tax legislation to have the smallest effects on Eurozone countries’ real GDP and UK tax changes to exert the largest effect. There is substantial heterogeneity in both the sign and size of spillovers after US and German aggregated tax cuts, whereas UK tax cuts generally have beneficial effects. When I focus the analysis on the state dependent case, I do not find clear evidence of larger spillovers when the recipient country is in a recession. The sign and size of the spillovers instead depend on the origin and sign of the tax change, as well as the recipient country, rather than on the overall state of the business cycle. Moreover, German tax cuts can be contractionary when recipient countries are in a recession, as the short-term interest rate rises. US tax cuts, on the other hand, stimulate the exports of most countries regardless of the state of the business cycle. |
| Keywords: | Fiscal policy, tax policy, legislated tax changes, state dependence, Eurozone, fiscal spillovers, asymmetric effects, United States, Germany, United Kingdom, local projections, narrative approach |
| JEL: | E62 E63 F45 H20 H30 K34 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:202133&r= |
| By: | Stefan Gerlach; Rebecca Stuart |
| Abstract: | This paper uses annual data to study the interaction of consumer and commodity prices in 15 economies over the period 1850-1913. We find that consumer price inflation in all 15 countries co-moves with a broad measure of changes in commodity prices. Consumer prices comove most strongly with changes in metal prices, in particular pig iron prices. Furthermore, changes in pig iron prices and production, which have attracted much attention in the literature on 19th century US business cycles, co-move with the international business cycle, suggesting that pig iron prices offer a transmission channel through which international business cycle movements affect inflation. |
| Keywords: | commodity prices, Gold standard, global inflation, pig iron |
| JEL: | E31 F40 N10 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:irn:wpaper:21-07&r= |
| By: | Fabio Canova; Filippo Ferroni |
| 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, to measure spillovers 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: | VARs; Local Projections; Bayesian Inference; Identification; Forecasts; Missing Values; Filters and Cycles; MATLAB |
| JEL: | E52 E32 C10 |
| Date: | 2021–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:93029&r= |
| By: | Klaus Adam; Erwan Gautier; Sergio Santoro; Henning Weber |
| Abstract: | Using micro price data underlying the Harmonized Index of Consumer Prices in France, Germany and Italy, we estimate relative price trends over the product life cycle and show that minimizing price and mark-up distortions in the presence of these trends requires targeting a significantly positive in flation target. Relative price trends shift the optimal infl ation target up from a level of zero percent, as suggested by the standard sticky price literature, to a range of 1.1%- 2.1% in France, 1.2%-2.0% in Germany, 0.8%-1.0% in Italy, and 1.1-1.7% in the Euro Area (three country average). Differences across countries emerge due to systematic differences in the strength of relative price trends. Other considerations not taken into account in the present paper may push up the optimal infl ation targets further. The welfare costs associated with targeting zero infl ation turn out to be substantial and range between 2.1% and 4.5% of consumption in present-value terms. |
| Keywords: | Optimal in ation target, micro price trends, welfare |
| JEL: | E31 E52 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_317&r= |
| By: | Balazs Vonnak (Magyar Nemzeti Bank (Central Bank of Hungary)) |
| Abstract: | In this paper a new instrument for monetary policy shocks is presented. Exogenous variation of the policy rate may come from frictions of collective decision-making. Dissenting votes indicate how far the final decision of the decision making body is from the mean of the members’ individually preferred interest rates and thus correlate with the policy shocks caused by the decision-making frictions. Measures of dissent are used as external instrument in a structural VAR. Results for the U.S. show significant effect of the Fed’s interest rate policy on real variables with the expected sign. On the other hand, the estimated effect on nominal variables is reminiscent of the price puzzle. Usual remedies, such as inclusion of commodity prices, inflation expectations or starting the sample in the middle of the eighties do not change the qualitative results casting doubt on the usual interpretation that the price puzzle is a statistical artifact. |
| Keywords: | monetary policy, structural vector autoregression, instrumental variable, price puzzle. |
| JEL: | C32 C36 E52 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2021/4&r= |
| By: | Robert E. Hall; Marianna Kudlyak |
| Abstract: | Unemployment recoveries in the US have been inexorable. Between 1949 and 2019, the annual reduction in the unemployment rate during cyclical recoveries was tightly distributed around 0.1 log points per year. The economy seems to have an irresistible force toward restoring full employment. Unless another crisis intervenes, unemployment continues to glide down to a level of approximately 3.5 percentage points. Occasionally unemployment rises rapidly during an economic crisis, while most the time, unemployment declines slowly and smoothly at a near-constant proportional rate. We show that similar properties hold for other measures of the US unemployment rate and for the unemployment rates of six other advanced countries. |
| Keywords: | Business cycle; Recovery; Unemployment; Recession |
| JEL: | E32 J63 J64 |
| Date: | 2021–08–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:93023&r= |
| By: | Sugata Marjit; Rashmi Ahuja; Abhilasha Pandey |
| Abstract: | In many developing economies rate of unemployment is increasing with skill accumulation and thereby leading to underemployment. Our paper offers to look at skill formation as a demand side problem not as a traditional supply side problem and also how skill formation or education affects unemployment among the remaining uneducated. We have developed a general equilibrium model of a small open developing economy incorporating skill formation, unemployment of unskilled labour in the formal sector and an informal sector which absorbs unemployed workers at a flexible wage rate. In this set up greater education for a group may generate educated unemployment within the group and increase unemployment of the uneducated outside the group leading to underemployment through the expansion of the informal sector. Both effects are due to shortage of complementary investment in production activities. Our theoretical findings are motivated by existing empirical evidence and a fresh empirical exercise undertaken using panel data of 32 countries. |
| Keywords: | skill formation, informal employment, skilled-unskilled wage inequality, underemployment |
| JEL: | J24 J31 E26 E24 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9278&r= |
| By: | Robert Bernhardt; Stefania D'Amico; Santiago I. Sordo Palacios |
| Abstract: | Municipal (muni) bonds are an important source of funding for state and local governments. During the Covid-19 pandemic, muni debt markets became severely distressed. In response, the Federal Reserve established the Municipal Liquidity Facility (MLF). Meanwhile, Congress enacted extensive fiscal measures that included direct aid to cities and states. To understand whether and how these policies worked, we employ a state-level regression model to estimate the relative efficacy of monetary and fiscal policy interventions for the term structure of muni-Treasury yield spreads. We find that fiscal and monetary policy together reduced those spreads by as much as 245 basis points. Fiscal policy contributed twice as much as monetary policy to the notable decline in shorter-term muni-Treasury spreads. At longer maturities, the contribution of fiscal policy was at least three times as large as that of monetary policy, suggesting that it addressed fundamental credit concerns. |
| Keywords: | Monetary Policy; Policy Effects; Stabilization; Bond Market; Security Markets; Government Bonds; Local Government Bonds |
| JEL: | E50 G51 H74 |
| Date: | 2021–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:93028&r= |
| By: | Juselius, Mikael; Tarashev, Nikola A. |
| Abstract: | While corporate credit losses have been low since the start of the Covid-19 pandemic, their future evolution is quite uncertain. Using a forecasting model with a solid track record, we find that the baseline scenario ("expected losses") is benign up to 2024. This is due to policy support measures that have kept debt service costs low. However, high indebtedness, built up when the pandemic impaired real activity, suggests increased tail risks: plausible deviations from the baseline scenario ("unexpected losses") feature ballooning corporate insolvencies. Taken at face value, the low expected loss forecasts are consistent with low bank provisions, whereas the high unexpected loss forecasts call for substantial capital. |
| Keywords: | COVID-19 |
| JEL: | E44 E47 E65 G17 G21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bofecr:32021&r= |
| By: | Christoph Gortz (University of Birmingham); Danny McGowan (University of Birmingham); Mallory Yeromonahos (University of Westminster) |
| Abstract: | We study how furlough affects household financial distress during the COVID-19 pandemic. Furlough increases the probability of late housing and bill payments by 30% and 9%, respectively. The effects exist for individuals who rent their home, but not mortgagees who can mitigate financial distress by reducing expenditure during furlough by deferring mortgage payments though the Mortgage Holiday Scheme. Furloughed individuals significantly reduce expenditure and spend their savings to offset furloughinduced income reductions. This creates wealth inequality but lowers the probability a furloughed worker experiences financial distress after returning to work. Estimates show an 80% government contribution to furloughed workers’ wages minimizes the incidence of financial distress at the lowest cost to taxpayers. |
| Keywords: | Furlough, Short-Time Work, Coronavirus Job Retention Scheme, Covid-19 Pandemic, Financial Distress, Automatic Stabilizers, Inequality |
| JEL: | D14 D31 E24 G51 H24 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:21-13&r= |
| By: | Halberstadt, Arne |
| Abstract: | The decomposition of bond yields into term premiums and average expected future short rates is impaired by the limited availability of information about the dynamics of the expectations component. Therefore, many studies require the model-implied average expected future short rates to be close to short rate expectations from surveys. In this paper, I restrict the variance of changes in model-implied average expected future short rates to match the variance of changes in short rate expectations from surveys. The variance of changes in survey expectations is relatively similar across markets and thus provides a reliable source of additional information about the expectation formation of investors. Technically, I impose a nonlinear restriction to the term structure model of Adrian, Crump, and Moench (2013). I show that typical small sample problems of term structure estimations can be mitigated if the restriction on the variance of changes is imposed. However, the analysis also makes a case for unrestricted estimations if they are based on a dataset with a typical sample length in macro finance, though. |
| Keywords: | Affine Term Structure Models,Empirical Finance |
| JEL: | E43 E44 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:272021&r= |
| By: | John C. Williams |
| Abstract: | Remarks at St. Lawrence University (delivered via videoconference). |
| Keywords: | inflation; pandemic; COVID-19; economy; employment; prices; monetary policy; North Country |
| Date: | 2021–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:93034&r= |
| By: | Watanabe, Minoru; Yasuoka, Masaya |
| Abstract: | Effects of taxation are examined in many studies. For such studies, the model economy assumes a logarithmic utility function. Results derived from our study indicate that attention should be devoted to using logarithm utility functions. We check the redistribution policy effect financed by capital income taxation in models of two types: a Ramsey model and an overlapping generations model. If the labor supply is inelastic, then effects of the redistribution policy financed by taxation of capital income differs between the Ramsey model and the overlapping generations model. However, if the labor supply is elastic, then the policy financed by capital income taxation is the same between the Ramsey model and the overlapping generations model. Moreover, this study presents simulation results. |
| Keywords: | Overlapping generations model, Ramsey model, Redistribution, Taxation |
| JEL: | E24 H20 |
| Date: | 2021–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109635&r= |
| By: | Kim, Chi Hyun |
| Abstract: | Do memories of highly emotional stock market crashes permanently affect the investment decisions of households? The Initial Public Offerings of Deutsche Telekom during 1996- 2000 provide an optimal base to address this question, as it is known for its emotional character and is reputedly "the last time Germans invested in stocks." Using Socio-Economic Panel (SOEP) household survey data, I show that having experienced this event leads to persistently lower stock market participation in the future. In addition, this effect is greater for households that had directly invested in Telekom shares, those being more likely to have high emotional experiences. Finally, I also show that such traumatic experiences on investment decisions have intergenerational consequences, significantly affecting how the next generation invests in the financial market. |
| Keywords: | Household finance,stock market participation,financial crises |
| JEL: | D14 G01 G11 E21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:pp1859:32&r= |
| By: | Øivind Anti Nilsen; Håvard Skuterud; Ingeborg Munthe-Kaas Webster |
| Abstract: | This paper provides evidence on price rigidity at the product- and firm-level in Norway. A strong within-firm synchronization is found supporting the theory of economies of scope in menu costs. The industry synchronization effects are found to be small suggesting that firms either have some monopoly power, or that a firm’s costs of changing their own prices may be larger than the benefit of responding to their competitors’ price changes. These findings have potentially important implications for the micro-foundations of macroeconomic models, and thus the policy advice derived from such models. |
| Keywords: | price setting, monthly micro data, selection effects |
| JEL: | E31 D43 C35 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9274&r= |
| By: | Emanuel Kohlscheen; Richhild Moessner |
| Abstract: | We provide novel systematic cross-country evidence that the link between domestic labour markets and CPI inflation has weakened considerably in advanced economies during recent decades. The central estimate is that the short-run pass-through from domestic labour cost changes to core CPI inflation decreased from 0.25 in the 1980s to just 0.02 in the 2010s, while the longrun pass-through fell from 0.36 to 0.03, with the estimates in the 2010s no longer significant. We show that the timing of the collapse in the pass-through coincides with a steep increase in import penetration from a group of major manufacturing EMEs around the turn of the millennium, which signals increased competition and market contestability. |
| Keywords: | competition, globalisation, import penetration, inflation, labour market, pass-through, wage |
| JEL: | E31 E50 F10 F60 J30 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9281&r= |
| By: | Guo, Lu; Yan, Chong |
| Abstract: | Differing from taxes of the new dynamic public finance theory without growth, our paper setups an endogenous growth model with the public finance sector which levies heterogeneous non-linear income taxes and linear flat-rate tax on gross outputs to guarantee the optimal investment in the public goods accumulation. Each taxation has individual effect: heterogeneous non-linear income taxes are used to keep standard Euler equation hold; flat-rate tax is used to compensate for the fiscal gap. The paper firstly makes the growth rate endogenous, and show there is a unique steady state growth rate for every aggregate variable by keeping assumptions of the dynamic general equilibrium theory unchangeable. We further prove the growth must exist when externalities are provided by public finance sector. The steady state growth rate can be expressed by coefficients, and the steady state intertemporal relationships of aggregate variables help us simplify simulation equations and calculations on endogenous heterogeneous non-linear income taxes in infinite periods. |
| Keywords: | endogenous tax; public finance; growth; uniqueness |
| JEL: | E6 H21 O41 |
| Date: | 2021–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109548&r= |
| By: | Stilianos Fountas (Department of Economics, University of Macedonia); Paraskevi Tzika (Department of Economics, University of Macedonia) |
| Abstract: | This paper focuses on economic policy uncertainty spillovers across Europe, before and after the outburst of the Eurozone crisis, using data for 7 Eurozone countries for the period 2003-2019. At first, we analyse the spillovers of uncertainty in Europe via the estimation of the Diebold-Yilmaz spillover index. The results indicate that uncertainty connectedness was 50.5% before the crisis, while it dropped to 30.6% afterwards indicating a sharp drop in uncertainty spillovers across the seven Eurozone countries. We also find that the importance of domestic causes in national uncertainty has increased during the crisis at the expense of imported factors. Dynamic net spillovers reveal that core Eurozone countries are uncertainty exporters before the crisis, while periphery countries transmit uncertainty to other countries during the crisis. An examination of the country which suffered the most during the crisis, using impulse response analysis, reveals that the Greek macroeconomic indicators (stock market, GDP, unemployment, and the ESI) were affected more by domestic, rather than European uncertainty. The highest responses are indicated during the crisis. Overall, there is positive interdependence between Greek and European uncertainty, which diminishes during the crisis. |
| Keywords: | economic policy uncertainty, rolling impulse responses, uncertainty spillovers, spillover index, Greek economy. |
| JEL: | C32 D80 E20 E66 F42 G18 |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2021_09&r= |
| By: | David Reifschneider (former Federal Reserve); David Wilcox (Peterson Institute for International Economics) |
| Abstract: | In 2012, the Federal Reserve formally adopted an inflation target and set it at 2 percent, in line with the level chosen by many other central banks. In hindsight, this setting left policymakers with too little room to cut interest rates when they want to fight recessions. Many researchers have noted that if central banks raised their inflation targets—either individually or in concert—they could do a better job in the long run of keeping inflation near its target and the workforce fully employed. Reifschneider and Wilcox highlight an additional and less-noted consequence of raising the inflation target modestly: The economy could enjoy a temporary but substantial boom in employment and output as it adjusted to the increase in the target. Critical to generating this favorable outcome would be decisive action by monetary policymakers to ensure that the higher inflation target is achieved in a reasonably timely manner. In light of substantial transition benefits, as well as the long-run improvement in economic performance, the authors recommend that the Federal Reserve raise its inflation target to 3 percent as part of its next framework review. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb21-19&r= |
| By: | Silvia Marchesi; Tania Masi; Saumik Paul |
| Abstract: | This paper evaluates the effect of development project aid from the World Bank and China on firms' Â’sales growth, using a large dataset of 110864 firms, spanning 121 countries between 2001 and 2016. We find that, contrary to the World Bank, Chinese ODA projects increase, on average, firm sales and, compared to sector-specific, Chinese region-speciÂ…c aid positively affect firm performance. Finally, we show that the positive effect of Chinese aid is stronger for firms lacking transport infrastructure (and with better electricity provision), suggesting that aid may improve firm performance by releasing their infrastructure constraints. |
| Keywords: | Aid effectiveness, World Bank projects, Chinese projects, Geo-coding, Firm growth. |
| JEL: | F35 O19 E24 E25 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:479&r= |
| By: | Boragan Aruoba; Andrés Fernández; Daniel Guzmán; Ernesto Pastén; Felipe Saffie |
| Abstract: | This paper accomplishes two goals: First, it proposes a way to compute monetary policy surprises in Chile based on a survey of financial market participants regularly conducted by Bloomberg. We argue this is the most suitable one among alternatives. Second, we use these monetary policy surprises as input in a Bayesian Vector Auto Regression analysis to estimate the effect of contractionary monetary policy. Output and inflation tend to fall while funding costs tend to increase. Expected inflation a has hump-shaped response and nominal exchange rates tend to depreciate instead of appreciating. We argue the latter two effects are consistent with an "information channel" embedded in monetary policy decisions. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:921&r= |
| By: | Silvia Marchesi; Pietro Bomprezzi |
| Abstract: | This paper evaluates the effects of IMF programs at the firm level, using a panel of about 130,000 firms, over the period 2003-2018. We consider the different dimensions of a Fund program, namely participation, loan size and number and scope of conditions, and we look at their effects on growth of firm sales, as well as on income redistribution within the firm. Our identiÂ…cation strategy exploits the differential effect of changes in IMF liquidity on program participation (Lang 2016). We find a positive impact of IMF programs on firms' Â’sales growth, and the effect is persistent through time. What is more, we find that performance is improved through the alleviation of the firm financing constraint. More severe conditionality seems to worsen firm performance in the short run, but then turns beneficial over the years. Finally, we find that participating to an IMF program reduces the labor income share in the short term, but employment increases in the long run, suggesting that the increased income is reinvested into the firm. |
| Keywords: | IMF conditionality, IMF, Firm growth, Labor Income Share. |
| JEL: | F33 O19 E24 |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:476&r= |
| By: | Ullah, Irfan; Ahmed, Mumtaz |
| Abstract: | Previous empirical literature supports that stock bubbles have impacts on efficient allocation of wealth. Researchers targeted various economies in the past using various methods to explore bubble phenomenon. This study uses generalized SADF test which is admitted by empirical literature as the most successful technique to explore stock bubbles in three countries included in European Free Trade Association (EFTA) not studied before. This paper takes a lead and tests for the existence of bubbles in monthly end index prices of respective countries based on latest available time series data from January 2001 to September 2019. Based on empirical results, it is concluded that all three countries stock markets experienced multiple bubbles in study period. The case of Iceland is worse where comparatively more fluctuations in stock prices are seen. To avoid occurrence of further stock price bubbles in these countries policy recommendations are provided as well. |
| Keywords: | periodically collapsing bubbles; generalized supremum ADF; explosivity |
| JEL: | C22 E44 G15 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109633&r= |
| By: | Rob Luginbuhl (CPB Netherlands Bureau for Economic Policy Analysis) |
| Abstract: | We propose a model-based method to estimate a unique financial cycle based on a rank-restricted multivariate state-space model. This permits us to use mixed-frequency data, allowing for longer sample periods. In our model the financial cycle dynamics are captured by an unobserved trigonometric cycle component. We identify a single financial cycle from the multiple time series by imposing rank reduction on this cycle component. The rank reduction can be justified based on a principal components argument. The model also includes unobserved components to capture the business cycle, time-varying seasonality, trends, and growth rates in the data. In this way we can control for these effects when estimating the financial cycle. We apply our model to US and Dutch data and conclude that a bivariate model of credit and house prices is sufficient to estimate the financial cycle. |
| JEL: | E5 F3 G15 G01 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:409&r= |
| By: | Tolulope T. Osinubi (Obafemi Awolowo University, Ile-Ife, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon) |
| Abstract: | This study examines the effect of globalization on female economic participation (FEP) in MINT (Mexico, Indonesia, Nigeria & Turkey) and BRICS (Brazil, Russia, India, China & South Africa) countries between 2004 and 2018. Four measures of globalization are employed and sourced from KOF globalization index, 2018, while the female labour force participation rate is a proxy for FEP. The empirical evidence is based on Pooled Mean Group (PMG) estimators. The findings of the PMG estimator from the Panel ARDL method reveal that political and overall globalization in MINT and BRICS countries have a positive impact on FEP, whereas social globalization exerts a negative impact on FEP in the long-run. It is observed that economic globalization has no long-run effect on FEP. Contrarily, all the measures of globalization posit no short-run effect on FEP in the short-run. This supports the argument that globalization has no immediate effect on FEP. Thus, it is recommended that both MINT and BRICS countries should find a way of improving the process of globalization generally to empower women to be involved in economic activities. This study complements the extant literature by focusing on how globalization dynamics influence FEP in the MINT and BRICS countries. |
| Keywords: | Globalization; female; gender; labour force participation; MINT and BRICS countries |
| JEL: | E60 F40 F59 D60 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:aak:wpaper:20/004&r= |
| By: | Arjan Lejour (CPB Netherlands Bureau for Economic Policy Analysis); Simon Rabaté (CPB Netherlands Bureau for Economic Policy Analysis); Maarten van 't Riet (CPB Netherlands Bureau for Economic Policy Analysis); Wouter Leenders (University of California, Berkeley) |
| Abstract: | As long as there have been taxes, people have tried to avoid and evade them. Interest in these phenomena has been fueled by the effects on public revenues, as well as on the distribution of wealth and income. One prominent example of tax evasion is the hiding of wealth and income in tax havens. According to estimates by Zucman (2013), 8% of global financial wealth, or $5.9 trillion, is held in tax havens. During the global financial crisis of the late 2000s, the G20 countries vowed to tackle offshore tax evasion and proclaimed the end of the “era of banking secrecy”. In recent years, leaks containing confidential information from financial institutions as well as academic research investigating leaks and tax amnesties have confirmed the popular narrative that tax evasion is concentrated among the wealthiest in society (Alstadsæter, Johannesen and Zucman, 2018, 2019). This does not only affect public revenues, but also the measurement of wealth and income inequality. We use unique microdata to study tax evasion in the Netherlands. We have received data on over 27,000 participants to the Dutch tax amnesty between the years 2002 and 2018. In addition, we have data on households who appeared in recent information requests to 4 different Swiss banks. We link these data to administrative data on income, wealth, and demographics covering the entire Dutch population. |
| JEL: | H26 H87 E21 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:417&r= |
| By: | J. Sebastián Becerra; José Carreño; Juan Francisco Martínez |
| Abstract: | In this paper, we estimate a semi-structural New-Keynesian model for the Chilean economy. Our contribution consists of including a financial block, with an explicit description of the lending interest rate, credit volume, credit risk, and interest rate spreads. Firstly, we find the presence of a financial accelerator, that amplifies shocks. We find a significant relevance of financial sector feedback to the real economy. The incorporation of financial elements in a simple and flexible way allows the developed macro-financial model to be useful for various purposes. In this work, we carry out exercises in which extreme scenarios are simulated and are suitable for stress testing purposes. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:922&r= |
| By: | Egor Malkov (University of Minnesota, Federal Reserve Bank of Minneapolis) |
| Abstract: | This paper develops a framework for assessing the welfare effects of labor income tax changes on married couples. I build a static model of couples' labor supply that features both intensive and extensive margins and derive a tractable expression that delivers a transparent understanding of how labor supply responses, policy parameters, and income distribution affect the reform-induced welfare gains. Using this formula, I conduct a comparative welfare analysis of four tax reforms implemented in the United States over the last four decades, namely the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1993, the Economic Growth and Tax Relief Reconciliation Act of 2001, and the Tax Cuts and Jobs Act of 2017. I find that these reforms created welfare gains ranging from -0.16 to 0.62 percent of aggregate labor income. A sizable part of the gains is generated by the labor force participation responses of women. Despite three reforms resulted in aggregate welfare gains, I show that each reform created both winners and losers. Furthermore, I uncover two patterns in the relationship between welfare gains and couples' labor income. In particular, the reforms of 1986 and 2017 display a monotonically increasing relationship, while the other two reforms demonstrate a U-shaped pattern. Finally, I characterize the bias in welfare gains resulting from the assumption about a linear tax function. I consider a reform that changes tax progressivity and show that the linearization bias is given by the ratio between the tax progressivity parameter and the inverse elasticity of taxable income. Quantitatively, it means that linearization overestimates the welfare effects of the U.S. tax reforms by 3.6-18.1%. |
| Keywords: | Taxation of Couples, Tax Reforms, Welfare Analysis, Labor Supply, Sufficient Statistics, Linearization Bias |
| JEL: | D60 E62 E65 H31 J22 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2021-590&r= |
| By: | Haoyang Liu; David O. Lucca; Dean Parker; Gabriela Rays-Wahba |
| Abstract: | During the pandemic, national home values and housing activity soared as mortgage rates declined to historic lows. Under the canonical “user cost” house price model, home values are held to be very sensitive to interest rates, especially at low interest rate levels. A calibration of this model can account for the house price boom with the observed decline in interest rates. But empirically, we find that home values are nowhere near as sensitive to interest rates as the user cost model predicts. This lower sensitivity is also found in prior economic research. Thus, the historical experience suggests that lower interest rates can only account for a tiny fraction of the pandemic house price boom. Instead, we find more scope for lower interest rates to explain the rise in housing activity, both sales and construction. |
| Keywords: | home price; housing activity; interest rate |
| JEL: | D14 E52 R31 |
| Date: | 2021–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednls:93027&r= |
| By: | Chow, Hwee Kwan (School of Economics, Singapore Management University); Han, Daniel (School of Economics, Singapore Management University) |
| Abstract: | This study compares two distinct approaches, pooling forecasts from single indicator MIDAS models versus pooling information from indicators into factor MIDAS models, for short-term Singapore GDP growth forecasting with a large ragged-edge mixed frequency dataset. We investigate their relative predictive performance in a pseudo-out-of-sample forecasting exercise from 2007Q4 to 2020Q3. In the stable growth non-crisis period, no substantial difference in predictive performance is found across forecast models. We find factor MIDAS models dominate both the quarterly benchmark model and the forecast pooling strategy by wide margins in the Global Financial Crisis and the Covid-19 crisis. Reflecting the small open nature of the economy, pooling single indicator forecasts from a small subgroup of foreign-related indicators beats the benchmark, offering a quick method to incorporate timely information for practitioners who have difficulty updating a large dataset. Nonetheless, the information pooling approach retains its superior ability at tracking rapid output changes during crises. |
| Keywords: | Forecast evaluation; Factor MIDAS; pooling GDP forecasts; global financial crisis; Covid-19 pandemic crisis |
| JEL: | C22 C53 C55 |
| Date: | 2021–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:smuesw:2021_006&r= |
| By: | Noam, Eli |
| Abstract: | Cryptocurrencies provide an important dimension of innovation to the evolution of the exchange medium we call money. There are now over 4,000 such currencies, and their potential and volume is growing. The impact of such currencies for money laundering, law enforcement, and banking supervision have been extensively discussed on the transaction level. But this is the "micro" level of analysis. What has been rare is a "macro" level discussion of the impact on the monetary system of a country. Central banks, which are institutions tasked with providing monetary stability, will see their problems rise while the power of their traditional tools to control money supply and interest rates - such as reserve requirements and the discount rates - is declining. But the new digital technologies - such as distributed ledgers - and new approaches provide regulatory bodies also with new and potentially powerful tools. The task for central banks and policy makers is to create new approaches to use, regulate, and incent them in shaping the macro-economic path of their economy. The paper will propose several of these approaches. This is of particular importance in an economic recovery post coronavirus. In the process, central banks will also, predictably, issue their own digital currencies, and a tiny number of those will become global super-currencies. This will create a new type of issues. |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itsb21:238043&r= |
| By: | INOSE Junya |
| Abstract: | The heterogeneous model in macroeconomics has produced great developments in recent decades. One major development which includes heterogeneity relates to consumer behavior, especially in describing income and wealth inequality. More powerful and sophisticated computing technologies and the increasing availability of microdata have fueled these developments. Among these developments is the invention of the Heterogeneous agent New Keynesian (HANK) models. We advanced the Huggett model of income and wealth distribution to include human capital accumulation. The inclusion of human capital accumulation into a heterogeneous agent model enables us to capture not only wealth, but skill inequality and its dynamics. This paper provides two main contributions. We (i) construct a mathematical tool to analyze models with non-linearity, and (ii) provide implications for the policy of wealth redistribution, especially basic income. The conclusions of this analysis can be again summarized by the following three points: (i) the introduction of basic income may increase the share of liquidity constrained households, (ii) the introduction of basic income results in a decrease of the aggregate share of time spent investing in human capital, and (iii) the introduction of basic income may increase consumption and this may result in an increase in the interest rate. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:21070&r= |
| By: | Batinti, Alberto; Andriani, Luca; Filippetti, Andrea |
| Abstract: | Citizens’ attitudes and reactions to policymakers’ decisions depend on several factors, including informal institutions. The novelty of this paper is to use social capital as a moderator factor to shed light on the relationship between fiscal policies and electoral outcomes. We investigate this relationship using a sample of 6,000 Italian municipalities over the period 2003-2012 and use a Conditional Logit Matching model comparing incumbents to challengers’ characteristics within each election. We find that social capital increases the odds of the re-election of incumbent mayors who adopted a local fiscal policy more oriented towards capital investment (versus current expenditure) and towards property tax (versus income surcharge). This suggests that social capital encourages governmental functions and public policies improving long-term economic commitments, institutional transparency, and accountability. It also shows that decentralization works relatively better with social capital. |
| Keywords: | social capital; municipal elections; local government fiscal policies |
| JEL: | E6 |
| Date: | 2019–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:100438&r= |
| By: | Ceyhun Elgin; M. ayhan Köse; Franziska Ohnsorge; Shu Yu |
| Date: | 2021–04 |
| URL: | http://d.repec.org/n?u=RePEc:bou:wpaper:2021/04&r= |
| By: | Santos, Susana |
| Abstract: | The values of economic flows measured by the national accounts, associated to transactions of goods, services, and assets, as well as transfers, represent interactions between institutional units, to whom legal responsibility for their actions and the fulfilment of specific economic functions is recognized. These flows are defined by the underlying system - System of National Accounts (SNA) as transactions. When represented in the matrix form, depending on the classification and organization of the institutional units, in the origin and the destination of the corresponding flows, the “from-whom-to-whom” transactions can be measured and modelled, benefiting from the underlying network of linkages. By adopting the nomenclatures and rules of the current version of the above-mentioned system (SNA 2008), this study uses a top-down methodology to introduce two matrix representations of the national accounts’ transaction values. In these representations, the transactions are the same and the difference is in the form of classification and organization of the institutional units, in the origin and the destination of the corresponding flows, that is in the way how the rows and the columns of the matrices are represented. In one of these forms, the so-called National Accounting Matrix (NAM), the mentioned institutional units are only organized by institutional sectors, following the sequence of accounts defined by the SNA. In the other form, the so-called Social Accounting Matrix (SAM), only a part is organized in the same way as the previous, being given a different emphasis to the process of production in which these units are involved, namely, to the factors of production, activities (or industries) and products (or goods and services). The correspondence and the differences between both are identified and a SAM-based approach is developed. Thus, inspired in the Transaction Value (TV) Approach presented in Drud et al. 1986, empirical and theoretical descriptions of the economic activity of a country, allowed by numerical and algebraic versions of the SAM, are adopted to approach the multiplier effects and the corresponding economic adjustments of fiscal policy measures associated to the production of real estate activities. An application to Portugal follows the various aspects of the description. |
| Keywords: | National Accounts; Social Accounting Matrix; Economic Adjustments |
| JEL: | E01 E16 E65 |
| Date: | 2021–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109488&r= |
| By: | Hakan Yilmazkuday (Department of Economics, Florida International University) |
| Abstract: | Using U.S. data from Monday of each week, this paper estimates oil price pass-through into consumer prices (PC) and oil price pass-through into gasoline retail prices (PG) in a continuous way. The results show that PC (PG) is about 0.5% (13%) after a week, 1.5% (37%) after three months, and 4.2% (50%) in the long run. The estimated PC is further decomposed into direct PC (representing oil price effects on consumer prices through gasoline retail prices) versus indirect PC (representing oil price effects on consumer prices through ex-gasoline prices), suggesting that long-run oil price effects on consumer prices are mostly through ex-gasoline consumer prices. Despite having distinct pass-through estimates, about three-fourths of weekly volatility in both gasoline retail and consumer prices are explained by oil price shocks in the long run. |
| Keywords: | Pass-Through, Oil Prices, Gasoline Prices, Consumer Prices, Weekly Data |
| JEL: | E31 Q43 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:2118&r= |
| By: | Hannes Schwandt; Janet Currie; Marlies Bär; James Banks; Paola Bertoli; Aline Bütikofer; Sarah Cattan; Beatrice Zong-Ying Chao; Claudia Costa; Libertad Gonzalez; Veronica Grembi; Kristiina Huttunen; René Karadakic; Lucy Kraftman; Sonya Krutikova; Stefano Lombardi; Peter Redler; Carlos Riumallo-Herl; Ana Rodríguez-González; Kjell Salvanes; Paula Santana; Josselin Thuilliez; Eddy van Doorslaer; Tom Van Ourti; Joachim Winter; Bram Wouterse; Amelie Wuppermann |
| Abstract: | Although there is a large gap between Black and White American life expectancies, the gap fell 48.9% between 1990-2018, mainly due to mortality declines among Black Americans. We examine age-specific mortality trends and racial gaps in life expectancy in rich and poor U.S. areas and with reference to six European countries. Inequalities in life expectancy are starker in the U.S. than in Europe. In 1990 White Americans and Europeans in rich areas had similar overall life expectancy, while life expectancy for White Americans in poor areas was lower. But since then even rich White Americans have lost ground relative to Europeans. Meanwhile, the gap in life expectancy between Black Americans and Europeans decreased by 8.3%. Black life expectancy increased more than White life expectancy in all U.S. areas, but improvements in poorer areas had the greatest impact on the racial life expectancy gap. The causes that contributed the most to Black mortality reductions included: Cancer, homicide, HIV, and causes originating in the fetal or infant period. Life expectancy for both Black and White Americans plateaued or slightly declined after 2012, but this stalling was most evident among Black Americans even prior to the COVID-19 pandemic. If improvements had continued at the 1990-2012 rate, the racial gap in life expectancy would have closed by 2036. European life expectancy also stalled after 2014. Still, the comparison with Europe suggests that mortality rates of both Black and White Americans could fall much further across all ages and in both rich and poor areas. |
| JEL: | E21 I1 J1 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29203&r= |
| By: | Sai Ding; Minjoo Kim; Xiao Zhang |
| Abstract: | The investment-cash flow sensitivity (ICFS) of Chinese listed firms declined during the global financial crisis, which contradicts the conventional financial constraint interpretation of ICFS. We analyze this interesting phenomenon by examining how cash flow uncertainty affects the ways to finance investment in China. We find that ICFS reveals not only the information between investment and cash flow but also the relationship between internal funds and external financing. When internal funds and external financing are complements, cash flow uncertainty decreases ICFS much more than when internal funds and external financing are substitutes. Our results remain robust when we consider the problem of endogeneity and use alternative measures of key variables. Our story is also supported by the sample of US firms, indicating that our new interpretation of ICFS based on cash flow uncertainty and the relationship between internal funds and external financing can apply to the general literature of corporate finance. |
| Keywords: | cash flow uncertainty, financial constraint, debt, cash flow, investment, China |
| JEL: | E22 G31 O16 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2021_16&r= |
| By: | FUJITANI Ryosuke; HATTORI Masazumi; YASUDA Yukihiro |
| Abstract: | We empirically examine the effects of economic policy uncertainty (EPU) on the investment and cash holding behaviors of Japanese firms. We use the Japanese EPU index developed by Arbatli, Davis, Ito & Miyake (2019). They calculate the index based on the approach of Baker, Bloom & Davis (2016) as well as subcategories of EPU indices. We find that Japanese firms invest less and accumulate more cash when EPU becomes higher. We find that the uncertainty of fiscal and exchange rate policy are the key drivers of the negative impacts on corporate investment. However, we also find that exchange rate policy uncertainty only has short-term predictive power for investment. Additionally, we find that economic policy uncertainty in the US has negative spillover (contagion) effects on corporate investment in Japan. Our findings suggest that Japanese managers become more cautious in making investment decisions as a response to both higher US economic policy uncertainty and economic policy uncertainty in Japan. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:21069&r= |
| By: | Zhang, Bo (Beijing University of Chemical Technology); Zhou, Peng (Cardiff Business School) |
| Abstract: | The global financial crisis since 2008 revived the debate on whether or not and to what extent financial development contributes to economic growth. This paper reviews different theoretical schools of thought and empirical findings on this nexus, building on which we aim to develop a unified, microfounded model in a small open economy setting to accommodate various theoretical possibilities and empirical observations. The model is then calibrated to match some well-documented stylized facts. Numerical simulations show that, in the long run, the welfaremaximizing level of financial development is lower than the growth-maximizing level. In the short run, the price channel (through world interest rate) dominates the quantity-channel (through financial productivity), suggesting a vital role of international cooperation in tackling systemic risk of the global financial system. |
| Keywords: | economic growth; financial development; open economy; DSGE |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2021/21&r= |
| By: | Kindop, Igor |
| Abstract: | According to the literature, the bimodality of estimates in mixed causal–non-causal autoregressive processes is due to unlucky starting values and happens only ocassionally. This paper shows that a unique and convergent solution is not always the case for models of this class. Instead, the likelihood function is not convex leading to the multimodality of estimated parameters. It can be attributed to the magnitude and sign of the autoregressive coefficients. Simultaneously, the number of local modes grows with the number of autoregressive parameters in the model. This multimodality depends on the parameters of the process and the chosen error distribution. We have to apply grid search methods to extract candidate solutions. The independence of residuals is a necessary hypothesis for the proper identification of the processes. A simple AIC criterion helps to select an independent model. Finally, I sketch a roadmap on estimating mixed causal-noncausal autoregressive models and illustrate the approach with Brent spot oil price returns. |
| Keywords: | non-causal model, non-convex likelihood, non-Gaussian, nonfundamentalness, multimodality. |
| JEL: | C13 C22 C51 C52 C53 E37 |
| Date: | 2021–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109594&r= |
| By: | Carret, Vincent |
| Abstract: | Ragnar Frisch's famous "rocking horse" model has been the object of much praise and even controversy since its publication in 1933. This paper offers a new simulation of the model to show that there exists cyclical trajectories in the propagation mechanism. By building an analytical solution taking the same form as Frisch's original solution, we can provide new insights into the ideas encapsulated in his model, in particular the fact that the author constructed a model combining cycles and growth. The exploration of Frisch's formal construction of the model leads us to link his statistical work on the decomposition of time series with his economic insights on investment cycles, which both led to the 1933 model. We contrast Frisch’s approach to that of other econometricians who used similar equations, showing that their different mathematical solutions were the product of what they wanted to show with their models. |
| Date: | 2021–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:69nsg&r= |
| By: | Ahmed, Mumtaz; Bashir, Uzma; Ullah, Irfan |
| Abstract: | Global Financial Crises (GFC) of 2007-08 has disclosed the fact that economists and policymakers were unable to foresee bubble in housing prices in the US and other countries that consequently triggered the economic downturn. However, serious attempts have been made afterwards by researchers towards early identification of asset price bubbles, so that necessary policy measures could be taken to avoid any future mishap. Current study is conducted in similar vein to identify bubbles in nominal Dollar to Pakistani Rs exchange rate, from January 1982 to May 2020. Whether any identified bubble in nominal exchange rate is a rational bubble or otherwise generated by fundamentals, nominal exchange rate is adjusted for traded goods price differential and non-traded goods price differential in two countries as there is growing trend to take underlying fundamentals into account while studying asset prices to get accurate results on bubble detection (Bettendorf and Chen, 2013; Jiang et al., 2015 and Hu & Oxley, 2017). Further to explore whether nature of bubble changes with regime switching from managed floating to flexible floating in Pakistan is an addition of the study. Results of Generalized sup Augmented Dicky-Fuller (GSADF) test show that traded goods fundamental fully explain the movements in exchange rates even when non-traded goods are taken into account. Exchange rates were volatile both in managed floating and flexible floating regimes. However, volatility in only managed floating regime can be attributed to traded goods price difference. Various explosive episodes have been observed during flexible floating regime, which are either collapse or collapse and recovery phases. |
| Keywords: | Multiple Bubbles; Explosive Behavior; GSADF test |
| JEL: | C2 C22 E3 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109607&r= |
| By: | Steven C. Bourassa (Florida Atlantic University); Martijn Dröes (University of Amsterdam); Martin Hoesli (University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School) |
| Abstract: | This paper explores the pricing of heterogeneous goods in the presence of market segmentation. We use housing as an example. We extend the theoretical hedonic model of Rosen (1974) and show that, in the presence of market segmentation, the hedonic price line is no longer continuous or unique. Using American Housing Survey data for the Miami and Louisville metropolitan areas and a finite mixture estimation approach, we find distinct market segments based on ethnicity, race, and income. |
| Keywords: | market segmentation, product differentiation, hedonic model, finite mixture model. |
| JEL: | E02 R31 O18 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp2162&r= |
| By: | Juan G. Zapata; Carlos Castañeda; Daniel Wiesner; Laura Garzón |
| Abstract: | Finanzas territoriales y contrabando de cigarrillos en Colombia: una relación compleja tiene como base un estudio realizado por Fedesarrollo para British American Tobacco (BAT),sede Colombia, y se centra en discutir, validar y refutar argumentos y afirmaciones que suelen estar en el radar cuando se habla de los impuestos saludables y específicamente de los aplicados a los cigarrillos y similares. Para el caso colombiano se analiza con particular énfasis la relación de la tributación con el contrabando. El primero analiza el comportamiento de las finanzas departamentales, especialmente después de la entrada en vigor de la Ley 1819 del 2016, que contempló un fuerte incremento de los impuestos a los cigarrillos y derivados del tabaco. Este primer acápite repasa los cambios en materia tributaria de los cigarrillos en las últimas décadas y presenta la dinámica del recaudo por impuestos a los cigarrillos y tabaco en el país. Incluye, además, una estimación de la presión tributaria de estos productos y un análisis del comportamiento de las incautaciones de cigarrillos ilegales a lo largo del territorio nacional. Debe mencionarse que buena parte de lo encontrado se basa también en un trabajo cualitativo que se hizo con entrevistas semiestructuradas con funcionarios departamentales de las secretarías de Hacienda y de sus oficinas de rentas y de programas anticontrabando. El segundo pilar centra su análisis en validar o invalidar la posible incidencia del incremento en la carga tributaria a los cigarrillos en el crecimiento del contrabando en el comercio de tabaco en el país. Hay información puntual fuerte y confiable que muestra que el aumento de las incautaciones de cigarrillos puede estar relacionado con el incremento de los impuestos. Se realizaron ejercicios econométricos que evaluaron el impacto que tuvo la Ley 1819 en el comportamiento del consumo de cigarrillos ilegales en el país. Para esto último se contó con la información de Invamer de la encuesta anual que se hace para estimar el contrabando en el país. En el tercer pilar se valora un amplio grupo de trabajos que analizan la incidencia del aumento de la carga tributaria al cigarrillo en la salud. Como veremos, hay una gran dificultad para estimar esta relación, pues las metodologías que se utilizan son de muy compleja aplicación. Esto se complementó con un análisis de la información pública disponible en las Encuestas de Hogares y Calidad de Vida y de los Registros Individuales de Prestación de Servicios de Salud –RIPS– sobre el consumo de tabaco de los colombianos. Aunque limitados, los resultados son interesantes y dejan como enseñanza que si se ajustan un poco las fuentes de información disponibles en el país, será posible adelantar análisis más precisos. |
| Keywords: | Finanzas Territoriales, Contrabando, Cigarrillos, Finanzas Públicas, Estructura Tributaria, Consumo de Tabaco, Finanzas Públicas, Departamentales, Impuestos al Consumo, Enfermedades Asociadas al Consumo, Tabaco, Colombia |
| JEL: | E60 L66 H20 H30 |
| Date: | 2021–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000439:019503&r= |
| By: | Röhl, Klaus-Heiner |
| Abstract: | Der Mittelstand bildet mit nahezu 3,5 Millionen Unternehmen die Basis der deutschen Wirt-schaftsstärke. Unternehmensgründungen sind für die ständige Erneuerung der mittelständi-schen Unternehmenslandschaft unerlässlich; innovative Start-ups bringen wichtige Innovatio-nen auf den Markt, die etablierten Unternehmen zu riskant erscheinen. Die Pläne der Parteien zur Bundestagswahl für den Mittelstand sowie die Förderung und Erleichterung von Gründun-gen sind daher hoch relevant. In diesem Policy Paper werden die Wahlprogramme der Parteien, die potenziell vor einer Regierungsbeteiligung stehen könnten, auf ihre Relevanz für die mittel-ständische Wirtschaft hin untersucht. Da mittelständische Unternehmen durch Bürokratie und Regulierung kapazitätsbedingt besonders belastet sind, werden auch neue Regulierungsvorha-ben beziehungsweise Pläne zum Bürokratieabbau berücksichtigt. Eine besondere Rolle für die weitere Wirtschaftsentwicklung spielt die Digitalisierung, wie die Corona-Pandemie schlaglicht-artig verdeutlicht hat. Viele mittelständische Unternehmen sind in der Digitalisierung eher Nachzügler, was für die deutsche Verwaltung in der Einführung des E-Governments allerdings ebenfalls gilt. Da die digitale Infrastruktur und die Digitalisierung der Verwaltung auch für den Mittelstand immer wichtiger werden, werden die Pläne der Parteien im Digitalbereich ebenfalls in die Untersuchung einbezogen. |
| JEL: | E61 H11 L53 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:162021&r= |
| By: | Castro-Iragorri, C; Ramírez, J; Vélez, S |
| Abstract: | We provide an overview of decentralized protocols like Compound and Aave that offer collateralized loans for cryptoasset investors. Compound and Aave are two of the most important application in the decentralized finance (DeFi) ecosystem. Using publicly available information on rates, supply and borrow activity, and accounts we analyze different elements of the protocols. In particular, we estimate ex-post margins that give a comprehensive account of the cost of financial intermediation. We find that ex-post margins considering all markets are 1% and lower for stablecoin markets. In addition, we estimate quarterly indicators regarding solvency, asset quality, earnings and market risk similar to the ones used in traditional banking. This provides a first look at the use of these metrics and a comparison between the similarities and challenges to our understanding of financial intermediation in these protocols based on tools used for traditional banking. |
| Keywords: | Decentralized finance, Compound, Aave, collateralize loans, intermediation margins, camels |
| JEL: | C63 C80 E51 G21 G23 G51 O16 O33 |
| Date: | 2021–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000092:019420&r= |
| By: | Santiago Tobón Zapata; Daniel Mejía; Ervyn Norza; Martín Vanegas-Arias |
| JEL: | K42 O17 E26 J48 C93 |
| Date: | 2021–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000122:019514&r= |