JournalTOCs

IMF Economic Review
Journal Prestige (SJR): 3.287

Citation Impact (citeScore): 2
Number of Followers: 44

Hybrid journal (It can contain Open Access articles)
ISSN (Print) 2041-4161 - ISSN (Online) 2041-417X
Published by Springer-Verlag

[2469 journals]

Too Big to Fail and Moral Hazard: Evidence from an Epoch of Unregulated
Commercial Banking
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  Abstract: We analyze the link between “too big to fail” (TBTF) and moral hazard using a natural experiment from an epoch of unregulated commercial banking in Denmark. In 1908 the country faced a large banking shock where the creditors of distressed commercial banks received a bailout by the government for the first time in Danish history. Due to a fortuitous combination of circumstances, banks continued to operate in an unregulated environment for more than a decade after the bailout. By considering a sample from a pre-regulation epoch, we isolate the TBTF effect. Our empirical analysis shows that TBTF banks significantly reduced post-bailout capital ratios compared to other banks.
  PubDate: 2022-05-06
The New Fama Puzzle
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  Abstract: Abstract We re-examine the historically common finding that ex post depreciation and the forward premium are negatively correlated, usually termed the forward premium puzzle. When covered interest differentials are zero, this finding is equivalent to the rejection of the joint hypothesis of uncovered interest parity (UIP) and full information rational expectations. We term this result the Fama puzzle (1984), given the difficulty in identifying a time-varying risk premium that could rationalize this result. In our analysis, the rejection occurs for eight exchange rates against the US dollar, but does not survive into the period during and in the decade after the financial crisis. Strikingly, in contrast to earlier findings, the Fama coefficient—the coefficient on the interest differential—then becomes large and positive; this is what we term the New Fama Puzzle. Using survey based measures of exchange rate expectations, we find much more consistant evidence in favor of UIP. Hence, the explanation for the switch in the Fama coefficient in the wake of the global financial crisis is mostly a change in how expectations errors and interest differentials co-move.
  PubDate: 2022-04-26
Fiscal Consolidation and Automatic Stabilization: New Results
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  Abstract: Abstract We derive a novel measure of household income stabilization and analyze how reforms of tax-benefit systems in the period 2007–2014 have affected the workings of automatic stabilizers in the EU-27. Our results reveal that the heterogeneity in automatic stabilizers across EU countries has become slightly smaller over the period under consideration. With a few exceptions, automatic stabilizers could operate freely in the early phase of the financial and economic crisis, but were constrained in several EU countries by subsequent fiscal consolidation measures. A comparison of our estimates of automatic stabilizers inherent in tax-benefit systems with macro measures such as changes in cyclically adjusted budget balances reveals that micro-based estimates provide more precise information about the degree of household income stabilization.
  PubDate: 2022-04-26
For Whom the Levy Tolls: The Case of a Macroprudential Stability Levy in
South Korea
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  Abstract: Abstract Can capital flow management measures (CFMs) reduce external vulnerability of the economy' This paper studies the effectiveness of a macroprudential stability levy introduced in Korea, which was intended to curb foreign currency (FX) debt as well as to lengthen its maturity structure in the banking sector. Using the detailed bank-level balance sheet data, this study finds that the levy had limited effects on curbing non-core FX debt, while it substantially lengthened its maturity structure driven mainly by foreign bank branches’ interoffice account. The subsequent analysis employing the transaction-level loan rate data further suggests that it likely had unintended consequences favoring foreign bank branches that took advantage of regulatory arbitrage and therefore were able to take FX loan market share from domestic banks that could not avoid passing the levy onto their borrowers.
  PubDate: 2022-04-07
The Long Shadow of Public Interventions in the Financial Sector
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  Abstract: Abstract We take stock of the costs of government interventions in the financial sector over the period 2007–2017 and track the assets still under government control. We build a new bank-level dataset on interventions and holding divestitures covering 1114 financial institutions in 37 countries. At end-2017, few countries had fully divested their financial sector holdings. On average, public holdings were divested faster in more capitalized, profitable, and liquid banks. They remained higher in countries where private investment and credit growth grew slower, financial access, depth, efficiency, and competition were worse, and financial stability improved less.
  PubDate: 2022-03-26
Attention to the Tail(s): Global Financial Conditions and Exchange Rate
Risks
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  Abstract: Abstract We document how the entire distribution of exchange rate returns responds to changes in global financial conditions. We measure global financial conditions as the common component of country-specific financial condition indices, computed consistently across a large panel of developed and emerging economies. Using quantile regression, we provide a characterisation and ranking of the tail behaviour of a large sample of currencies in response to a tightening of global financial conditions, corroborating (and quantifying) some of the prevailing narratives about safe haven and risky currencies. Compared to most standard approaches, our methodology delivers a more nuanced picture of exchange rate behaviour, allowing for example to make probabilistic statements about the likelihood of observing large swings in returns given the prevailing global financial environment. We also identify macroeconomic fundamentals associated with different tail dynamics: currencies of countries with higher interest rates, low levels of international reserves and large fiscal deficits display more marked increases in the likelihood of large losses in response to a tightening of global financial conditions.
  PubDate: 2022-03-24
Export Prices, Imported Inputs, and Domestic Supply Networks
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  Abstract: Abstract We study the impact of import intensity in production of exporters and their suppliers on exchange rate pass-through to export prices. For identification, we use rich micro-level databases – domestic firm-to-firm sales and firm-product-level customs – from a large emerging market, Turkey. We find that ignoring suppliers’ import reliance misses nearly half of the picture: while exporters’ degree of reliance on own imported goods is 24%, this number reaches nearly 40% once their suppliers are taken into account. A higher degree of import reliance by exporters’ suppliers significantly increases pass-through to export prices by inducing higher imports-driven marginal costs passing over to downstream exporters. Moreover, exporters with a higher concentration in their domestic supply networks have a higher pass-through.
  PubDate: 2022-03-24
Decomposing Multinational Corporations’ Declining Effective Tax
Rates
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  Abstract: Abstract We develop a methodology to decompose the observed decline in multinational corporations’ (MNCs’) effective tax rates into several components and quantify the role of tax havens. We apply this methodology to the best available data for MNCs headquartered in the USA – from the Bureau of Economic Analysis – and in the EU – from Orbis – and we arrive at three main findings. First, we estimate that between 2005 and 2015 increased profits in tax havens directly explain only 29% and 1% of the 7% and 9% point declines in effective tax rates for US and EU MNCs, respectively. Second, we find that US MNCs have primarily benefited from domestic tax base reductions, most of which can be explained by sectoral changes, while the statutory rate has remained constant. Third, we show that EU MNCs have mainly benefited from falling domestic statutory rates and we observe similar patterns across EU home countries, host countries and sectors.
  PubDate: 2022-03-08
From Health Crisis to Financial Distress
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  Abstract: Abstract I discuss the multifaceted economic and financial vulnerabilities that have been created or exacerbated by the COVID-19 pandemic on a foundation of already weak economic fundamentals in many countries. Crises often do not travel alone. Banking, sovereign debt, exchange rate crashes, sudden stops, inflation often intersect to become severe conglomerate crises. Historically, whether of the individual or conglomerate variety, crises influence the shape and speed of economic recovery. As the health crisis morphs into a financial or debt crisis in some countries, I discuss what may lie ahead in terms of the stages in crisis resolution and brief reflection how the resolution process can be expedited.
  PubDate: 2022-01-28
  DOI: 10.1057/s41308-021-00152-6
Living in the Extreme: Economics of Pandemics, Climate Change and Tail
Risks
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  PubDate: 2022-01-25
  DOI: 10.1057/s41308-021-00156-2
Labor Market Policies and Business Cycles in Emerging Economies
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  Abstract: Abstract We build a small open economy business cycle model with search and matching frictions to assess the impact of labor market policies on the dynamics of employment and other macroeconomic variables in emerging economies. The model features an endogenous selection mechanism by which inefficient jobs are destroyed in recessions, thus linking labor market dynamics and aggregate productivity. In a quantitative version of the model calibrated to the Mexican economy, we find that reducing labor taxes and increasing firing costs would have mitigated the fall in employment during the Great Recession of 2008–2009. However, by preventing firms from dismissing low-productive workers, higher firing costs would have impaired this selection mechanism, thus generating a larger fall in TFP and delaying the recovery. Cutting labor taxes, in contrast, have minor effects on productivity by mainly affecting hiring decisions. An extension of the model shows that lowering labor taxes provides an additional productivity boost by expanding formal hirings and reducing the informality rate.
  PubDate: 2022-01-14
  DOI: 10.1057/s41308-021-00153-5
Correction to: Mobility Under the COVID-19 Pandemic: Asymmetric Effects
Across Gender and Age
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  PubDate: 2022-01-05
  DOI: 10.1057/s41308-021-00154-4
International Trade and Letters of Credit: A Double-Edged Sword in Times
of Crises
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  Abstract: Abstract This study argues that the ability to mitigate risks associated with international trade is particularly important at times of heightened uncertainty, such as the economic crisis caused by the Covid-19 pandemic. Risk mitigation can be achieved through letters of credit (LCs), trade finance instruments providing guarantees to trading partners. As their use varies across products, exports of some products are more resilient than others during times of increased uncertainty. This situation reverses in times of financial crises when distressed banks may limit the supply of LCs. Our analysis using data on US and EU-15 exports during the Covid crisis and the Global Financial Crisis provides empirical support for these hypotheses.
  PubDate: 2022-01-05
  DOI: 10.1057/s41308-021-00155-3
Correction to: Supply Chain Fragmentation and the Global Trade Elasticity:
A New Accounting Framework
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  Abstract: A correction to this paper has been published: https://doi.org/10.1057/s41308-021-00139-3
  PubDate: 2021-12-01
  DOI: 10.1057/s41308-021-00139-3
Effect of Trade Liberalization on Gender Inequality: The Case of India
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  Abstract: Abstract Using a panel of establishments from the annual survey of industries, I study the impact of the 1991 trade liberalization episode in India on the employment share of women. Contrary to the predictions of a taste-based discrimination model, I find that establishments exposed to larger output tariff reductions and import competition reduced the share of female workers. I also find that input tariff reductions neither raised nor reduced female employment share. The negative association between output tariff reductions and female employment appears to be driven by establishments which increased the number of shifts per worker. Since women in India are prohibited by law from working long hours and night shifts, this hours-constraint appears to have reduced relative employment of women. This paper is the first to provide empirical evidence of how an ostensibly pro-women policy of limiting female work hours might have unintended side effects. In order to look at the overall effects of liberalization on the gender employment share, I use Census of India data to create a district level panel. I find that districts which were more exposed to the reforms experienced a reduction in the share of female workers. This was observed for both urban and rural areas.
  PubDate: 2021-12-01
  DOI: 10.1057/s41308-021-00143-7
De-Globalization, Welfare State Reforms and Labor Market Outcomes
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  Abstract: Abstract Within an open economy framework characterized by vertical linkages in production, and search frictions with two-sided heterogeneity in the labor market, raising trade barriers is shown to increase unemployment across skill levels and to reduce labor market participation and aggregate income. These effects are not necessarily moderated by maintaining frictionless mobility of capital across borders. We find that a flexicurity reform of a liberal welfare state can dampen the adverse effects of de-globalization.
  PubDate: 2021-12-01
  DOI: 10.1057/s41308-021-00150-8
From Just-in-Time, to Just-in-Case, to Just-in-Worst-Case: Simple Models
of a Global Supply Chain under Uncertain Aggregate Shocks
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  Abstract: Abstract COVID-19 highlighted the weaknesses in the supply chain. Many have argued that a more resilient or robust supply chain is needed. But what does a robust supply chain mean' And how do firms’ decisions change when taken that approach' This paper studies a very stylized model of a supply chain, where we study how the decision of a multinational corporation changes in the presence of uncertainty. The two standard theories of supply chain are just-in-time and just-in-case. Just-in-time argues in favor of pursuing efficiency, while just-in-case studies how such decision changes when the firm faces idiosyncratic risk. We find that a robust supply chain is very different specially in the presence of systemic shocks. In this case, firms need to concentrate on the worst-case. This strategy implies a supply chain where the allocation of resources and capabilities does not correspond to the standard theories studied in economics, but follow a heuristic behavioral rule called “probability matching.” It has been found in nature and in experimental research that subjects appeal to probability matching when seeking survival. We find that a robust supply chain will reproduce this behavioral outcome. In fact, a multinational optimizing under uncertainty follows a probability matching which leads to an allocation that is suboptimal from the individual producer point of view, but rules out the possibility of supply disruptions.
  PubDate: 2021-11-15
  DOI: 10.1057/s41308-021-00148-2
Mobility Under the COVID-19 Pandemic: Asymmetric Effects Across Gender and
Age
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  Abstract: Abstract Overall mobility declined during the COVID-19 pandemic because of government lockdowns and voluntary social distancing. Yet, aggregate data mask important heterogeneous effects across segments of the population. Using unique mobility indicators based on anonymized and aggregate data provided by Vodafone for Italy, Portugal, and Spain, we find that lockdowns had a larger impact on the mobility of women and younger cohorts. Younger people also experienced a sharper drop in mobility in response to rising COVID-19 infections. Our findings, which are consistent across estimation methods and robust to a variety of tests, warn about a possible widening of gender and inter-generational inequality.
  PubDate: 2021-10-22
  DOI: 10.1057/s41308-021-00149-1
Inequality in Life and Death
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  Abstract: Abstract We argue that the COVID epidemic disproportionately affected the economic well-being and health of poor people. To disentangle the forces that generated this outcome, we construct a model that is consistent with the heterogeneous impact of the COVID recession on low- and high-income people. According to our model, two-thirds of the inequality in COVID deaths reflect preexisting inequality in comorbidity rates and access to quality health care. The remaining third stems from the fact that low-income people work in occupations where the risk of infection is high. Our model also implies that the rise in income inequality generated by the COVID epidemic reflects the nature of the goods that low-income people produce. Finally, we assess the health–income trade-offs associated with fiscal transfers to the poor and mandatory containment policies.
  PubDate: 2021-09-29
  DOI: 10.1057/s41308-021-00147-3
Stock Prices and Economic Activity in the Time of Coronavirus
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  Abstract: Abstract Stock prices and workplace mobility trace out striking clockwise paths in daily data from mid-February to late May 2020. Global stock prices fell 30% from 17 February to 12 March, before mobility declined. Over the next 11 days, stocks fell another 10 percentage points as mobility dropped 40%. From 23 March to 9 April, stocks recovered half their losses and mobility fell further. From 9 April to late May, both stocks and mobility rose modestly. This dynamic plays out across the 35 countries in our sample, with notable departures in China, South Korea and Taiwan. The size of the global stock market crash in reaction to the pandemic is many times larger than a standard asset-pricing model implies. Looking more closely at the world’s two largest economies, the pandemic had greater effects on stock market levels and volatilities in the USA than in China even before it became evident that early US containment efforts would flounder. Newspaper-based narrative evidence confirms the dominant—and historically unprecedented—role of pandemic-related developments in the stock market behavior of both countries.
  PubDate: 2021-09-13
  DOI: 10.1057/s41308-021-00146-4