WORKING PAPERS

 

Monetary Policy Under Natural Disaster Shocks, with Alessandro Cantelmo, Nikos Fatouros and Giovanni Melina, September 2022. Download PDF file.

 

With climate change increasing the frequency and intensity of natural disasters, what should central banks do in response to these catastrophic events? Looking at IMF reports for 34 disaster-years, which occurred in 16 disaster-prone countries from 1999 to 2017, reveals lack of any systematic approach to monetary authorities’ response to climate shocks. Using a standard small-open-economy New-Keynesian model with disaster shocks, we show that consistent with textbook theory, inflation targeting remains the welfare-optimal regime. Therefore, the best strategy for monetary authorities is to resist the impulse of accommodating in the face of catastrophic natural disasters, and rather continue to focus on price stability.

 


Income Convergence or Divergence in the Aftermath of the COVID-19 Shock? With Mariya Brussevich and Shihui Liu, May 2022. Download PDF file.

 

The paper extends the work of Deaton (2021) by exploring the period of post-crisis recovery in 2021-2024. The paper documents per-capita income divergence during the period of post-shock recovery, with countries at the bottom of the income distribution falling significantly behind. Findings suggest that higher COVID-19 vaccination rates and targeted virus containment measures are associated with faster recovery in per capita incomes in the medium term. Evidence on the effectiveness of economic support policies for reducing cross-country income inequality, including fiscal and monetary policies, is mixed especially in the case of developing countries.

 


Trade and the COVID-19 Pandemic: Lessons from French Firms, Mariya Brussevich and Pauline Wibaux, May 2022. PDF file.

 

This paper uses granular customs data from France to investigate propagation of the COVID-19 shock along the supply chains in 2020. It quantifies the effect of the COVID-19 shock on trade adjustment and identifies mitigating and amplifying factors contributing to French firms’ heterogeneous adjustment paths. Early in the pandemic, firms mainly responded to global lockdowns and spread of the virus by reducing trade volumes (intensive margin) as opposed to exiting from import and export markets (ex-tensive margin). However, adjustment along the extensive margin played a more important role in trade with developing countries. It is shown that the impact of lockdowns was stronger for final consumer goods and the trade recovery was predominantly demand-driven. More automated, inventory-intensive, older, and medium-sized firms were more insulated from the shock, whereas firms’ reliance on air transportation for shipping goods amplified the shock. Trade bans and promotion measures implemented by governments in response to the pandemic had little impact on aggregate trade flows.

 


Preferences for Reforms: Endowments vs. Beliefs, with Romain Duval Yi JiIppei Shibata and Antonio Spilimbergo, March 2022. Download CEPR WP 17088.

 

Are preferences for reforms driven by individuals’ own endowments or beliefs? To address this question, we conducted a cross-country survey on people’s opinions on employment protection legislation—an area where reform has proven to be difficult and personal interests are at stake. We find that individuals’ beliefs matter more than their own endowments and personal pay-offs. A randomized information treatment confirms that beliefs explain views about reform, but beliefs can change with new information. Our results are robust to several robustness tests, including to alternative estimation techniques and samples.

 


Monetary Policy Frameworks: An Index and New Evidence, with Filiz Unsal and Hendre Garbers, January 2022. Download PDF file.

 

We provide a multidimensional characterization of monetary policy frameworks across three pillars: Independence and Accountability, Policy and Operational Strategy, and Communications (IAPOC). We construct the IAPOC index by analyzing central banks’ laws and websites for 50 advanced economies, emerging markets, and low-income developing countries, from 2007 to 2018. Due to its scope and granularity, our index provides a holistic view of monetary policy frameworks which goes beyond existing measures of transparency or independence, as well as monetary policy or exchange rate regime classifications. Comparing the IAPOC index across countries and over time, we find that monetary policymaking is varied, fast-changing, and eclectic across the Policy and Operational Strategy and Communications pillars, especially in emerging markets and low-income developing countries.


The S-Curve: Understanding the Dynamics of Worldwide Financial Liberalization, with Nan Li, Tong Xu and Tao Zha, July 2021. Download NBER WP 28994.

 

We assemble two unique databases. One is on reforms in domestic finance, external finance, trade, product markets and labor markets, which covers 90 advanced and developing economies from 1973 to 2014. The other is on electoral results and timing of elections. In the 66 democracies considered in the paper, we show that liberalizing reforms engender benefits for the economy, but they materialize only gradually over time. Partly because of this delayed effect, and possibly because voters are impatient or do not anticipate future benefits, liberalizing reforms are costly to incumbents when implemented close to elections. We also find that the electoral effects depend on the state of the economy at the time of reform: reforms are penalized during contractions; liberalizing reforms undertaken in expansions are often rewarded. Voters seem to attribute current economic conditions to the reforms without fully internalizing the delay that it takes for reforms to bear fruit.


Searching for Wage Growth: Policy Responses to the Robot Revolution, with Andrew Berg, Edward Buffie and Felipe Zanna, March 2021. Download PDF file.

 

The current wave of technological revolution is changing the way policies work. We examine the growth and distributional implications of three policies: cuts to the corporate tax rate, increases in education spending, and increases in infrastructure investment. “Robot” capital does indeed make a big difference: the trickle-down effects of corporate tax cuts on unskilled wages are attenuated, and the relative merits of investment in infrastructure and especially in education are higher. For plausible calibrations, infrastructure investment and corporate tax cuts tend to dominate investment in education in the traditional economy, but in the “Robot” economy infrastructure investment dominates corporate tax cuts, while investment in education tends to produce the highest welfare gains of all. General equilibrium effects are important: in our baseline calibration, partial equilibrium rates of return always give the wrong welfare rankings.


Structural Reforms and Elections: Evidence from a World-Wide New Dataset, with Alberto F. Alesina, Davide Furceri, Jonathan D. Ostry and Dennis P. Quinn, January 2020. Download NBER WP 26720.

 

We assemble two unique databases. One is on reforms in domestic finance, external finance, trade, product markets and labor markets, which covers 90 advanced and developing economies from 1973 to 2014. The other is on electoral results and timing of elections. In the 66 democracies considered in the paper, we show that liberalizing reforms engender benefits for the economy, but they materialize only gradually over time. Partly because of this delayed effect, and possibly because voters are impatient or do not anticipate future benefits, liberalizing reforms are costly to incumbents when implemented close to elections. We also find that the electoral effects depend on the state of the economy at the time of reform: reforms are penalized during contractions; liberalizing reforms undertaken in expansions are often rewarded. Voters seem to attribute current economic conditions to the reforms without fully internalizing the delay that it takes for reforms to bear fruit.


The Armistice of the Sexes: Gender Complementarities in the Production Function, with Raphael Espinoza and Jonathan D. Ostry, June 2019. Download CEPR DP 13792.

 

Macroeconomic models have largely ignored the importance of gender diversity by assuming that male and female workers are perfectly substitutable in the aggregate production function. Whether this assumption is valid is an empirical question that this paper aims to answer by estimating the elasticity of substitution (ES) between the two types of labor. We apply linear and non-linear techniques to cross-country data at the aggregate level, to cross-country data at the sectoral level, and to firm-level data for the manufacturing sector in China. We find that male and female labor are far from being perfect substitutes: the ES is below 1 for the aggregate sample, between 1-2 for the sectoral sample, and between 2-3 at firm-level. We discuss why the ES may vary at different levels of aggregation and conclude on the implications of these results for growth accounting.


Upgrading and Export Performance in the Asian Growth Miracle, with Fidel Perez-Sebastian and Nikola Spatafora, May 2019. Download PDF file.

 

This paper explores the contribution of product quality upgrading to the export performance of six fast-growing Asian economies, namely, China, India, Indonesia, Malaysia, South Korea and Thailand. We focus on measuring the effect of quality upgrading on the changes experienced by the sectoral export shares in these countries from 1970 to 2010 at the 2-digit-SITC level. To do this, the paper first builds a multisector model of Ricardian trade following Eaton and Kortum (2002) in which product quality is incorporated as a key feature. The model is then calibrated to generate predictions about the volume of exports. Our approach differs from previous literature because it allows estimation without employing domestic production data. Our main results point to quality upgrading as being a main determinant of the export shares. We also find larger returns as the economys commitment to increasing quality becomes longer.


On the Resilience of Trade in Services: Evidence from a new cross-country dataset, with Prakash Loungani, Saurabh Mishra and Ke Wang, April 2019. Download PDF file | Data.

 

Using a newly constructed dataset on trade in services for 192 countries from 1970 to 2014, this paper shows that exports of services are not only gaining strong momentum and catching up with exports of goods in many countries, but they could also trigger a new wave of trade globalization. More importantly the paper shows that traded services are much more resilient compared to traded goods during bad economic times.


 

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