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on Transition Economics |
| By: | Anton Grui (National Bank of Ukraine); Nicolas Aragon; Oleksandr Faryna (National Bank of Ukraine; National University of Kyiv-Mohyla Academy); Dmytro Krukovets (National Bank of Ukraine); Kateryna Savolchuk (National Bank of Ukraine); Oleksii Sulimenko; Artem Vdovychenko (National Bank of Ukraine); Oleksandr Zholud (National Bank of Ukraine) |
| Abstract: | This report evaluates the monetary policy transmission mechanism in Ukraine during the early years of inflation targeting. It assesses both the overall strength of the policy interest rate transmission, and its channels. Furthermore, it addresses the stabilizing role of forward guidance, foreign exchange interventions, and monetary policy credibility. The National Bank of Ukraine abandoned its fixed exchange rate regime in 2014 in response to an economic crisis ignited by the initial invasion by russia. Under inflation targeting, the short-term interest rate became the main monetary policy instrument, while the exchange rate remained floating. The full-scale russian invasion in 2022 forced the National Bank of Ukraine to temporarily shelve its policy interest rate, fix the exchange rate and impose administrative restrictions. However, it remains committed to returning to conventional inflation targeting when economic conditions normalize. This report could become a point of reference for future policy decisions by the Ukrainian central bank. |
| Keywords: | monetary policy transmission mechanism, inflation targeting, interest rate channel, exchange rate channel, expectations channel |
| JEL: | E37 E43 E52 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:ukb:wpaper:02/2023&r=tra |
| By: | Patrinos, Harry Anthony; Rivera-Olvera, Angelica |
| Abstract: | Countries across Eastern Europe and Central Asia are in their third decade of independence. What impact does this have on the skills premium and does accession to the European Union have an impact on the returns to education? The returns to education in 28 transition and 20 non-transition countries in Europe and Central Asia are analyzed using panel data analysis and difference-in-difference methods to estimate the impact of transition and EU accession. It is found that the transition from a centrally planned economy to a market economy increases the returns to schooling in post-socialist countries positively and significantly, especially through the EU accession channel. |
| Keywords: | returns to education, transition, technological change |
| JEL: | I26 J31 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1312&r=tra |
| By: | Ina Ganguli; Fabian Waldinger |
| Abstract: | We discuss the impacts of the Russian invasion on Ukrainian science. Using newly collected data, we show that the war has already had significant effects on science in Ukraine: research papers produced by Ukrainian scientists declined by about 10%, approximately 5% of the most prolific scientists are publishing with a foreign affiliation, 22% of top universities have faced destruction of physical capital, and international collaborations with Russian scientists have declined by more than 40%. Drawing upon the economics of science and innovation literature, we highlight three primary channels through which wars impact science: (1) the loss of human capital, (2) the destruction of physical capital, and (3) reductions in international scientific cooperation. The evidence from the literature on the long-run effects of losing human or physical capital indicates that shocks to physical capital can be remedied more easily than shocks to human capital. Our new data also suggests that human capital shocks are the main drivers of the reduction in Ukrainian research output that has occurred since the beginning of the war. Hence, reconstruction efforts that focus on supporting scientists to continue in the research sector, and return to Ukraine after the war has ended, are likely to have the greatest impact on long-run scientific productivity in Ukraine. |
| JEL: | F51 I23 O3 P20 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31449&r=tra |
| By: | Mikhail Mamonov; Anna Pestova |
| Abstract: | How much do sanctions harm the sanctioned economy? We examine the case of Russia, which has faced three major waves of international sanctions over the last decade (in 2014, 2017, and 2022). In a VAR model of the Russian economy, we first apply sign restrictions to isolate shocks to international credit supply to proxy for the financial sanctions shocks. We provide a microeconomic foundation for the sign restriction approach by exploiting the syndicated loan deals in Russia. We then explore the effects of the overall sanctions shocks (financial, trade, technological, etc.) by employing a high-frequency identification (HFI) approach. Our HFI is based on each OFAC/EU sanction announcement and the associated daily changes in the yield-to-maturity of Russia’s US dollar-denominated sovereign bonds. Our macroeconomic estimates indicate that Russia’s GDP may have lost no more than 0.8% due to the financial sanctions shock, and up to 3.2% due to the overall sanctions shock cumulatively over the 2014–2015 period. In 2017, the respective effects are 0 and 0.5%, and in 2022, they are 8 and 12%. Our cross-sectional estimates show that the real income of richer households declines by 1.5–2.0% during the first year after the sanctions shock, whereas the real income of poorer households rises by 1.2% over the same period. Finally, we find that the real total revenue of large firms with high (low) TFPs declines by 2.2 (4.0)% during the first year after the sanctions shock, whereas the effects on small firms are close to zero. Overall, our results indicate heterogeneous effects of sanctions with richer households residing in big cities and larger firms with high TFPs being affected the most. |
| Keywords: | Sanctions news shock, Monetary policy, Commodity terms-of-trade, High-frequency identification (HFI), Household income, TFP |
| JEL: | F51 E20 E30 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp756&r=tra |
| By: | Shykhutsina, Veranika |
| Abstract: | With the help of the concept of linkage and leverage, this paper aims at exploring how the relative influence of international actors (namely the European Union (EU) and Russia) can explain the persistence of the authoritarian regime in Belarus. The findings suggest that in the background of the great power competition that has played out in Belarus, EU's efforts to expand different types of linkages have not resulted in their sufficient levels to create leverage capable of neutralizing a significant Russian influence. Apart from the absence of substantial linkages between Belarus and the EU, such factors as Russia being a "countervailing power" providing the Belarusian regime with all sorts of support needed to sustain the autocratic rule; the absence of EU membership perspective; and diverging geopolitical interests of the EU member states leading to the absence of a coherent policy in relation to Belarus also negatively affect the strength and effectiveness of EU's leverage. |
| Keywords: | Authoritarian persistence, Belarus, Democratization, Linkage and Leverage, Social contract |
| JEL: | F51 F59 P27 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:2182023&r=tra |
| By: | Diao, Xinshen; Fang, Peixun; Pauw, Karl; Randriamamonjy, Josee; Thurlow, James; Akramov, Kamiljon T.; Ellis, Mia |
| Abstract: | Tajikistan experienced strong annual economic growth of 6.8 percent during the 2011 to 2020 period (TAJSTAT 2020). This has translated into improved living standards, with the national poverty rate falling from 53.1 percent in 2007 to 26.3 percent in 2019 (World Bank 2023a). The global COVID-19 pandemic caused a significant slowdown in economic growth in 2020, but the economy rebounded in 2021. However, as a country heavily reliant on wheat and fuel imports, Tajikistan was severely affected by the Russia-Ukraine war that started in 2022, and more recently by the global recession in 2023 (Arndt et al. 2023; Diao and Thurlow 2023). Private remittances are the largest source of foreign exchange, accounting for nearly one-third of Tajikistan’s GDP and more than 40 percent of total foreign inflows. Russia is the most important destination for Tajikistan’s emigrants working abroad, and the ongoing war will continue to affect movement of people and inflows of remittances. Tajikistan’s GDP growth is projected to be 6.5 percent in 2023 and 5.0 percent in 2024 (World Bank 2023b), below its pre-pandemic growth trajectory. |
| Keywords: | agrifood systems, value chains, markets, agriculture, labour productivity, off-farm employment, poverty, diet quality, jobs, development, gross national product, livestock, freuits, cereals, poultry, oilseeds, gross domestic product (GDP), |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:afsdcs:18&r=tra |
| By: | Fabrizio Ferriani (Bank of Italy); Andrea Gazzani (Bank of Italy) |
| Abstract: | We study the impact of the widening energy price differentials caused by the war in Ukraine on the returns of European and US firms. Using several measures of firms' exposure to energy consumption, we show that return differentials between EU and US firms widened significantly after the outbreak of the war in Ukraine. Our results indicate a persistent comparative disadvantage between the two regions, driven by heterogeneous energy costs, which has continued even after the partial subsiding of the energy shock by the end of 2022. These findings suggest that the impact of the war on energy prices may have lasting economic implications for Europe, potentially exacerbating its competitiveness disadvantages compared with other geographic regions that have access to more affordable energy inputs. |
| Keywords: | war in Ukraine, energy impacts, energy comparative advantage, financial performance |
| JEL: | G12 G14 G32 G33 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_789_23&r=tra |
| By: | Mikhail Mamonov; Anna Pestova; Steven Ongena |
| Abstract: | We study the impacts of global financial sanctions on banks and their corporate borrowers in Russia. Financial sanctions were imposed consecutively between 2014 and 2019, allowing targeted (but not-yetsanctioned) banks to adapt their international and domestic exposures in advance. Using a staggered difference-in-differences approach with in-advance adaptation to anticipated treatment, we establish that targeted banks immediately reduced their foreign assets and actually increased their international borrowings after the first sanction announcement compared to other similar banks. We reveal that the added value of the next sanction announcements was rather limited. Despite considerable outflow of domestic private deposits, the government support prevented disorderly bank failures and resulted in credit reshuffling: the banks contracted corporate lending by 4% of GDP and increased household lending by almost the same magnitude, which mostly offset the total economic loss. Further, we introduce a two-stage treatment diffusion approach that flexibly addresses potential spillovers of the sanctions to private banks with political connections. Employing unique hand-collected board membership and bank location data, our approach shows that throughout this period, politically-connected banks were not all equally recognized as potential sanction targets. Finally, using syndicated loan data, we establish that the real negative effects of sanctions materialized only when sanctioned firms were borrowing from sanctioned banks. When borrowing from unsanctioned banks, sanctioned firms even gained in terms of employment and investment but still lost in terms of market sales pointing to a misallocation of government support. |
| Keywords: | Staggered policy implementation, Anticipation effects, Treatment diffusion, Banks, International positions, Politically-connected firms, Capital misallocation |
| JEL: | F51 G41 H81 L25 |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp753&r=tra |
| By: | Sonali Chowdhry; Julian Hinz; Katrin Kamin; Joschka Wanner |
| Abstract: | This paper examines the impact of coalitions on the economic costs of the 2012 Iran and 2014 Russia sanctions. By estimating and simulating a quantitative general equilibrium trade model under different coalition setups, we (i) dissect welfare losses for sanctions senders and target; (ii) compare prospective coalition partners; (iii) investigate “optimal” coalitions that maximise payoff from sanctions; (iv) provide bounds for sanctions potential, i.e. the maximum welfare change attainable when sanctions are scaled vertically up to an embargo, and horizontally up to a global regime. Relative to unilateral action, we find that coalitions magnify welfare losses imposed while their impact on domestic welfare loss incurred depends on the design and sectoral dimension of sanctions. Hypothetical cooperation of large developing economies such as China additionally raises the deterrent force of coalitions. Additionally, we quantify transfers that equalise welfare losses across coalition members to further demonstrate asymmetries in the relative economic burden of sanctions. In all scenarios, we implement a novel Bayesian bootstrap procedure that generates confidence bands for simulation outcomes. |
| Keywords: | sanctions, embargoes, alliances, sectoral linkages |
| JEL: | F13 F14 F17 F51 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10561&r=tra |
| By: | Mikhail Mamonov |
| Abstract: | This paper suggests a novel approach to measuring fraud in banking and to evaluating its crosssectional and aggregate implications. I explore unique evidence of declining regulatory forbearance from the Russian banking system in the 2010s, when the central bank forcibly closed roughly twothirds of all operating banks for fraudulent activities. I first introduce an empirical model of the regulatory decision rule that determines whether a regulator is likely to run an unscheduled onsite inspection of a suspicious bank in the near future. I estimate the model using unique data on asset losses hidden by commercial banks and discovered by the Central Bank of Russia during unscheduled on-site inspections in the last two decades. I find that the average size of hidden asset losses detected by the rule equals 38% of the total assets of not-yet-closed fraudulent banks, and that the likelihood of fraud detection soared by a factor of 5 after 2013. With quarter-by-quarter predictions from the estimated rule, I form a “treatment” group of likely-to-be-inspected banks and then run a “fuzzy” difference-in-differences (FDID) regression to estimate the effects of the tightened regulation. FDID estimates show that likely-to-be-inspected banks substantially reduced credit to households and firms after the policy started in 2013, compared to similar untreated banks. Interpreting the FDID estimates of credit contraction as a credit supply shock and evaluating the macroeconomic implications of this shock using a VAR model of the Russian economy, I find that Russia’s GDP could have been larger by 7.3% cumulatively by the end of 2016 in the absence of the policy. This is the price the economy pays for reducing fraud in the banking system. |
| Keywords: | Bank misreporting, Regulatory forbearance, Bank closure, Credit Supply Shocks, Heckman selection model, Fuzzy difference-in-differences, VAR |
| JEL: | D22 G21 G28 G33 H11 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp755&r=tra |
| By: | Roman Goncharenko; Mikhail Mamonov; Steven Ongena; Svetlana Popova; Natalia Turdyeva |
| Abstract: | In this paper, we analyze how firms search for new lenders after a financial regulator forcibly closes their prior banks, and what happens to the firms’ performance during this transition period. In 2013, the Central Bank of Russia launched a large-scale bank closure policy and started detecting fraudulent (sin) banks and revoking their licenses. By 2020, two-thirds of all operating banks had been shuttered. We analyze this unique period in history using credit register data. First, we establish that before sin bank closures, there was no informational leakage and the borrowing firms remain unaffected. After the closures, there is a clear sorting pattern: poorly-performing firms rush to other (not-yetdetected) sin banks, while profitable firms transfer to financially solid banks. We find that the coupling of poorly-performing firms and not-yet-detected sin banks occurs more frequently when the two sin banks (the prior and the next lender) are commonly owned or when the local banking market is unconcentrated. Finally, we show that during the transition period (i.e., after the sin bank closures and before matching to new banks), poorly-performing firms shrink in size and experience a sharp decline in borrowings and market sales, whereas profitable firms strengthen in terms of employment, investment, and market sales. A potential mechanism involves credit risk underpricing by sin banks: we find that poorly-performing firms (especially commonly owned) received loans at lower interest rates than profitable firms prior to sin bank closures. |
| Keywords: | Credit register, Bank clean-up, Regulatory forbearance, Credit risk underpricing, Common ownership |
| JEL: | G21 G28 |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp754&r=tra |
| By: | Kris De Jaegher; Michal Soltes; Vitezslav Titl |
| Abstract: | Public procurement contracts are necessarily incomplete and require frequent ex-post renegotiation. In this paper we first develop a stylized theoretical model of the effects of renegotiation policies on firms’ bidding strategies and, consequently, on the winning bids and final prices of contracts. We then use a Czech policy reform to empirically test the model’s predictions. Our findings show that (i) eased renegotiation rules lead to a decrease in the average winning bids; however, (ii) average final prices of contracts remain at the pre-reform level as the extra renegotiated price compensates for the drop in winning bids. We do not find convincing evidence of a decrease in productivity of the winning firms, but we do provide suggestive evidence of a change of contract allocation towards firms with higher bargaining power. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp757&r=tra |
| By: | Hryszko, Krzysztof; Szajner, Piotr |
| Abstract: | The aim of the article is to assess the impact of changes in excise duty rates on prices, consumption, and tax revenue to the state budget on the development of the domestic tobacco industry. The study was conducted, among other things, using methods of statistical comparative analysis, dynamics of the main elements of the market, exponential regression analysis, and analysis of selected financial ratios. The research shows that between 2010 and 2021 the tobacco industry in Poland developed very dynamically due to foreign direct investments and competitiveness on the EU market. Fiscal policy determined prices of tobacco products, as indirect taxes dominated the structure of retail prices. The increasing rates of excise duty resulted in a decrease in cigarette consumption, which was compensated by an increase in the consumption of innovative products. The effectiveness of fiscal policy is also confirmed by the growing budget revenues and reducing the shadow economy in the internal market. In recent years, however, consumer income has been growing faster than the prices of tobacco products, which has resulted in their better affordability. In conclusion, between 2022 and 2027, excise tax rates will gradually increase due to the harmonization of the national tax law with the regulations in force in the European Union. The increase in excise duty rates will determine the production and sale of tobacco products, which will adapt to demand conditions. Higher rates of excise tax will result in an increase in the prices of tobacco products and state budget revenues from indirect taxes. |
| Keywords: | Agricultural Finance, Demand and Price Analysis |
| Date: | 2023–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iafepa:337446&r=tra |
| By: | Patrick Lenain; Ben Westmore; Quoc Huy Vu; Minh Cuong Nguyen |
| Abstract: | Viet Nam has been quick to recover from the downturns caused by the COVID-19 pandemic, but it faces long-term economic challenges. Boosting labour productivity will be crucial to sustained high economic growth. Attracting further foreign investment and reaping the benefit of advanced technologies will require additional improvements to the business environment through simplifying administrative procedures. Levelling the playing field of competition between state-owned enterprises and private enterprises will also help to maintain Viet Nam’s attraction for international investors. The country is already among the leaders of digitalisation in Southeast Asia, with strong adoption of e-commerce, telemedicine and telework. Further investment in digital skills will be key to maintain this momentum. The authorities have committed to net zero carbon emissions by 2050 and are expanding renewable energy generation capacity. A comprehensive decarbonisation plan would facilitate the transition to greener growth. |
| Keywords: | business climate, carbon pricing, climate policy, digital skills, digitalisation, energy transition, foreign investment, net zero, productivity |
| JEL: | H23 J24 K23 O14 Q43 Q52 Q54 |
| Date: | 2023–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1770-en&r=tra |