On the sources of macroeconomic stability in the euro area

In the mid-1990s the euro area experienced a change in macroeconomic volatility. Around the same time, at business cycle frequencies the correlation between inflation and money growth changed markedly, turning from positive to negative. Distinguishing the periods pre- and post-1994, we estimate a dynamic stochastic general equilibrium model with money for the euro area. The model accounts for the salient facts. We then perform several counterfactual exercises to assess the drivers of these phenomena. The moderation of real variables was essentially due to relatively smaller shocks to investment, wage markups and preferences. The apparent lack of evidence for the quantity theory of money in the short run and the changes in the volatility of nominal variables resulted primarily from a more anti-inflationary and gradual monetary policy.     

Global impact of a shift in foreign reserves to euros

This paper uses QUEST III, a multi-region DSGE model, to study the macroeconomic effects of a gradual equalization of official foreign reserves between dollars and euros. We simulate a scenario of a shift in the composition of foreign reserves holdings from the present ratio of 65% dollars and 25% euros to equal 45% shares over a 10 years period. We assume imperfect substitutability between financial assets to allow this shift to have real effects. Our simulations point towards small real effects due to the reduction in real interest rates resulting from this shift in official holdings.

The sooner,the better: The economic impact of non-pharmaceutical interventions during the early stage of the COVID-19 pandemic

This paper estimates the economic impact of the non-pharmaceutical interventions (NPIs) implemented by countries in Europe and Central Asia during the initial stages of the COVID-19 pandemic. The analysis relies on daily electricity consumption, nitrogen dioxide emission and mobility records to trace the economic disruptions caused by the pandemic and calibrate these measures to estimate the magnitude of the economic impact. To address the potential endogeneity in the introduction of NPIs, we instrument their stringency by the extent of a country's social ties to China. The results suggest that the NPIs led to a decline of about 10% in economic activity across the region. On average, countries that implemented non-pharmaceutical interventions in the early stages of the pandemic appear to have better short-term economic outcomes and lower cumulative mortality, compared with countries that imposed non-pharmaceutical interventions during the later stages of the pandemic. Moreover, there is evidence that COVID-19 mortality at the peak of the local outbreak has been lower in countries that acted earlier. In this sense, the results suggest that the sooner non-pharmaceutical interventions are implemented, the better are the economic and health outcomes.     

Material and nonmaterial impacts of the COVID-19 pandemic: Evidence from a low-income country

How have COVID-19-related restrictions affected consumption levels and life satisfaction in low-income countries? We conducted phone surveys with 577 households in Liberia to compare consumption patterns across three points in time: November 2019 (pre-COVID-19), May 2020 (short term), and September 2020 (medium term). This article analyzes the impacts of the Covid-19 pandemic and the related restrictions on food and nonfood consumption, which we categorize as “material” welfare and life satisfaction, which we categorize as “nonmaterial” welfare. We find differences between food and nonfood consumption patterns under pandemic conditions. In particular, consumption by households dependent on food and labor markets was negatively affected by the pandemic. In terms of life satisfaction, we find that most respondents perceived their lives to have worsened due to the pandemic.     

Evaluating the effectiveness of labor market interventions on reducing the impacts of the COVID-19 pandemic

This paper evaluates whether different labor market policy interventions taken in response to the COVID-19 pandemic have been effective in reducing its adverse impacts. We construct a database covering 165 countries and 39 labor market interventions grouped into four pillars: stimulating the economy and jobs (pillar 1); supporting enterprises, employment, and incomes (pillar 2); protecting workers (pillar 3); and social dialogue (pillar 4). The results revealed that measures taken under pillars 1, 2, and 3 have reduced the impacts of the pandemic on economic growth; measures under pillar 4 were significantly associated with reducing its impacts on employment and those under pillar 2 with reducing its impacts on working hours.     

The natural rate of interest and the output gap in the euro area: a joint estimation

The notion of a natural real rate of interest, due to Wicksell (Interest and prices. Macmillan, London Translation of 1898 edition, 1936), is widely used in current central bank research. The idea is that there exists a level at which the real interest rate would be compatible with output at its potential level and stationary inflation. Such a concept is of primary concern for monetary policy because it provides a benchmark for the monetary policy stance. This paper applies the method suggested by Laubach and Williams (Rev Econ Stat 85(4):1063–1070, 2003) to jointly estimate the natural real interest rate and the output gap in the euro area using data from 1960 onwards. Our results suggest that the natural real rate of interest has declined gradually over the past 40 years. They also indicate that monetary policy in the euro area was on average stimulative during the 1960s and the 1970s, while it contributed to dampen the output gap and inflation in the 1980s and 1990s. The views expressed in this paper are those of the authors and do not necessarily reflect the opinions of the institutions to which they are affiliated. We are grateful to Siem Jan Koopman for very helpful suggestions and comments. We also thank P. Cour-Thimann, V. Curdia, F. Drudi, S. McCaw, D. Rodriguez-Palenzuela, R. Pilegaard, H. Pill, L. Stracca, T. Laubach, J. C. Williams and the participants of an ECB workshop on natural interest rates.     

The effect of monetary policy on output in EMU3: A sign restriction approach

This paper examines the effects of monetary policy shocks on output in the three largest euro area economies – Germany, France and Italy (EMU3) – by applying a new VAR identification procedure. The results show that monetary policy innovations are at their most potent in Germany. However, apart from Germany, it remains ambiguous as to whether a rise in interest rates concludes with a fall in output, showing a lack of homogeneity in the responses. Homogeneity in response to a monetary shock is crucial in a one-size-fits-all framework. Nonetheless, the lack of similarity between the responses, which is hypothesised to cause de-synchronised business cycles in optimal currency area literature, is often based on the premise that monetary policy itself is a major source of business cycle fluctuations. This paper concludes that monetary policy innovations play, at most, a modest role in generating fluctuations in output for the EMU3. Consequently, it is less important whether the effects of monetary policy are homogenous.     

Anchoring of inflation expectations in the euro area: Recent evidence based on survey data

This article analyses the anchoring of inflation expectations of professional forecasters and consumers in the euro area. We study anchoring, defined as the central bank's ability to manage expectations, by paying special attention to the impact of the ECB inflation target and ECB inflation projections on inflation expectations. Our analysis indicates that in the post-crisis period longer-term inflation expectations have become somewhat more sensitive to shorter-term ones and to actual HICP inflation. We also find that the ECB inflation projections have recently become more important for short- and medium-term expectations of professional forecasters and at the same time the role of the ECB inflation target for those expectations has diminished. Overall, our analysis suggests that in recent years inflation expectations in the euro area have shown some signs of de-anchoring.     

The welfare implications of COVID-19 for fragile and conflict-affected regions

Understanding the ramifications of the COVID-19 pandemic for households' welfare in regions subject to fragility, conflict, and violence (FCV) is important to inform programs and policies in this context. Harmonized data from high-frequency phone surveys indicates that, at the onset of the pandemic, a higher fraction of respondents in FCV regions relative to non-FCV ones faced adverse household income changes and reported to have stopped working since the outbreak of the crisis. On top of that, households in FCV regions were far less likely to have received government assistance than those in non-FCV regions. These findings suggest that, at the start of the COVID-19 pandemic, there was a widening of the preexisting economic gap between FCV and non-FCV regions, raising the recovery bar for the former.     

Housing affordability and responses during times of stress: A preliminary look during the COVID-19 pandemic

The global SARS-CoV-2/COVID-19 Pandemic has disrupted public health, economies, and housing markets since early 2020. The shock has called forth a number of policy responses, such as moratoria on foreclosures and evictions, attempts to regulate rents and prices, and a range of subsidies on both supply and demand sides. This paper reviews the state of housing markets and discusses the expected efficacy of alternative policy measures taken or contemplated. Recognizing the provisional nature of any paper written during a large and durable ongoing shock, suggestions for additional research are provided.     

Impact of government policy responses of COVID-19 pandemic on stock market liquidity for Australian companies

This study investigates the impact of government policy responses of COVID-19 pandemic on stock market liquidity for listed Australian companies and for 11 different industries separately. A quantitative deductive approach is used for a sample of 1,452 companies with a total of 292,164 firm-day observations over a period from January 25, 2020 to December 31, 2020 during the outbreak of COVID-19. Univariate and multivariate (two-way cluster-robust panel regression) analysis were conducted. Data were collected from the Oxford COVID-19 Government Response Tracker, Worldmeter, Refinitiv Workspace and Datastream. Our findings indicate that the influences of the six out of seven stringency policy responses reduced Australian equity market liquidity. However, public information campaigns enhanced market liquidity and hence trading activity. Among the 11 industries, our analysis shows that the non-pharmaceutical interventions by the Australian government have significant and positive effects on four industries: Consumer non-cyclicals, healthcare, financial and technology. However, the worse effects were depicted in the industrial (transportation) and energy industries. This study is important for investors, policymakers and regulators to understand the diverse effects of government policy responses of COVID-19 on stock market liquidity to enhance financial stability. Moreover, understanding this effect is particularly important to decision-makers such as portfolio and fund managers to manage their portfolios and trading activities during extreme turbulence times, such as COVID-19. Unlike previous studies that focus on country analysis, this study examines on firm basis the impact of government interventions on stock market liquidity in a well developed Australian stock market.     

Support for bigger government: The principle-implementation gap and COVID-19

We study the COVID-19 pandemic's effect on government and market attitudes using within-subject comparisons of survey responses elicited before and after the onset of the pandemic. We find that participants develop significantly less favorable opinions toward government and markets; and that participants increase support for bigger government significantly and for redistribution, in general, marginally significantly. There is no evidence this leads to an increase in support for specific redistributive policies, nor for government to play a larger role in specific functions. Our results echo the stubbornness of American preferences for redistribution and suggest the presence of a principle-implementation gap.     

Effects of COVID-19 restrictions on mechanization service providers and mechanization equipment retailers: Insights from phone surveys in Myanmar

Agrifood sector mechanization service providers (MSP) and mechanization equipment retailers (MER) have increasingly become the providers of mechanical technologies for smallholders in developing countries, including Myanmar. Evidence remains scarce on the effects of COVID-19 on these MSPs and MERs. This study provides insights into the effects of COVID-19 restrictions on MSPs and MERs in Myanmar, using unbalanced panel data from five rounds of phone surveys. Direct responses to COVID-19 involving movement restrictions, market disruptions, and growing financial challenges had significant negative effects on revenue prospects, service delivery, and sales of machines and equipment. Negative revenue prospects during a particular period can further hurt revenue prospects in subsequent periods. This is consistent with the hypotheses that MSPs who had incurred high sunk costs in machines can engage in more desperate and, thus, potentially suboptimal business practices to recover the sunk cost. Overall, policies to minimize movement restrictions and various financial struggles and mitigate any pessimism at the beginning of the production season are all important to make sure MSPs and MERs continue to function effectively under COVID-19.     

The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area

This paper investigates the average impact of government debt on per-capita GDP growth in twelve euro area countries over a period of about 40 years starting in 1970. It finds a non-linear impact of debt on growth with a turning point – beyond which the government debt-to-GDP ratio has a negative impact on long-term growth – at about 90–100% of GDP. Confidence intervals for the debt turning point suggest that the negative growth effect of high debt may start already from levels of around 70 to 80% of GDP. The channels through which government debt is found to have a non-linear impact on the economic growth rate are private saving, public investment and total factor productivity.     

Examining the global environmental impact of regional consumption activities — Part 2: Review of input-output models for the assessment of environmental impacts embodied in trade

This paper offers a detailed review of recently described single- and multi-region input-output models used to assess environmental impacts of internationally traded goods and services. It is the second part of a two-part contribution. In Part 1 [Turner, K., Lenzen, M., Wiedmann, T. and Barrett, J. in press. Examining the Global Environmental Impact of Regional Consumption Activities — Part 1: A Technical Note on Combining Input-Output and Ecological Footprint Analysis; Ecological Economics.] we describe how to enumerate the resource and pollution content of inter-regional and inter-national trade flows with the aim to illustrate an ideal accounting and modelling framework for the estimation of Ecological Footprints.A large number of such environment-economic models have been described but only in the last few years models have emerged that use a more sophisticated multi-region, multi-sector input-output framework. This has been made possible through improvements in data availability and quality as well as computability. We identify six major models that employ multi-sector, multi-region input-output analysis in order to calculate environmental impacts embodied in international trade. Results from the reviewed studies demonstrate that it is important to explicitly consider the production recipe, land and energy use as well as emissions in a multi-region, multi-sector and multi-directional trade model with global coverage and detailed sector disaggregation. Only then reliable figures for indicators of impacts embodied in trade, such as the Ecological Footprint, can be derived.     

Measuring the total impact of demographic and behavioural factors on the risk of obesity accounting for the depression status: a structural model approach using new BMI

Building upon previous studies that highlight considerable overlap in the influential factors of both obesity and depression, we employ a structural model to investigate the direct and indirect impacts of behavioural and demographic factors on obesity. We use new body mass index (BMI) to calculate the obesity status and find a significant relationship between an individual’s depression status and his/her obesity status. The results and simulations imply that demographic and behavioural factors can significantly influence the obesity status both directly and indirectly through their impact on depression. Therefore, this study suggests that models which do not account for these various pathways of influence are most likely misrepresenting the impact of these factors on obesity.     

The need for combining IEA and IE tools: The potential effects of a global ban on PVC on climate change

Over the last decades the concepts of Integrated Environmental Assessment (IEA) and Industrial Ecology (IE), both claiming to provide analyses and solutions for sustainability issues, have been developed separately as they emerged in response to questions from different policy-fields. In both fields, specific tools are used to support national and international environmental policy. The focus of IEA and IE tools, however, is different. IEA tools focus on one or a limited number of specific environmental issues. They often model the chain environmental processes with high spatial (and temporal) resolution, but have a low resolution for the material structure of the economy and only partly take into account indirect effects that occur via physical and socio-economic linkages. IE tools take into account all environmental issues related to a specific substance or product. They have a high resolution for the material structure of the economy and take into account indirect effects that occur via physical linkages, however, their environmental modelling is very limited. Both IE and IEA tools have proven to be very useful and neither is superior to the other. However, a combination of both can provide additional information that can be used for more effective policy making. We use the case of a hypothetical world-wide ban on PVC to show that a measure that is not directly related to climate change could still have significant climate effects. This indirect effect is a result of the linkages of material flows in society. We show that IEA tools are not well suited to include these types of effects and that IE tools can fill this gap partially. What is really needed is a broader systems perspective that takes into account the full range of possible side-effects of environmental policy measures.     

The inherent dangers of using computable general equilibrium models as a single integrated modelling framework for sustainability impact assessment. A critical note on Böhringer and Löschel (2006)

The search for methods of assessment that best evaluate and integrate the trade-offs and interactions between the economic, environmental and social components of development has been receiving a new impetus due to the requirement that sustainability concerns be incorporated into the policy formulation process. A paper forthcoming in Ecological Economics [Böhringer, C., Löschel, A., in press. Computable general equilibrium models for sustainability impact assessment: status quo and prospects, Ecological Economics.] claims that Computable General Equilibrium (CGE) models may potentially represent the much needed “back-bone” tool to carry out reliable integrated quantitative Sustainability Impact Assessments (SIAs). While acknowledging the usefulness of CGE models for some dimensions of SIA, this commentary questions the legitimacy of employing this particular economic modelling tool as a single integrating modelling framework for a comprehensive evaluation of the multi-dimensional, dynamic and complex interactions between policy and sustainability. It discusses several inherent dangers associated with the advocated prospects for the CGE modelling approach to contribute to comprehensive and reliable sustainability impact assessments. The paper warns that this reductionist viewpoint may seriously infringe upon the basic values underpinning the SIA process, namely a transparent, heterogeneous, balanced, inter-disciplinary, consultative and participatory take to policy evaluation and building of the evidence-base.