Journal of Economic Perspectives

Nowcasting consumer price inflation using high-frequency scanner data: evidence from Germany

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Martedì, Aprile 23, 2024

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Key Points:

Isabel Schnabel: The future of inflation (forecast) targeting

Retrieved on:

Giovedì, Aprile 18, 2024

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Stock market development and familiarity (language and distance) are considered key determinants for home bias.

Key Points:

Stock market development and familiarity (language and distance) are considered key determinants for home bias.
The literature neglects however that investors often invest in foreign funds domiciled in financial centers.

A new measure of firm-level competition: an application to euro area banks

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Giovedì, Aprile 18, 2024

Glass, RPD, Journal of Economic Perspectives, Goldberg, Employment, Lead, Competition, SCP, Research Papers in Economics, TCF, Intuition, Laboratory, Euromoney, Bank of Canada, Calendar, International political economy, Manufacturing, Oxford Economic Papers, Harvard University Press, Paper, Linearity, R2, Environment, Delicatessen, System, Website, Panzar, Working paper, World Bank, Elzinga, Friends, Madiga, CPB, Investment, Lerner index, Statistics, Croatian National Bank, PDF, Elsevier, ECB, Industrial organization, Policy, Social science, JEL, Operations research, Internet, Journal, Research, Literature, European Central Bank, Journal of Economic Surveys, MRP, Commercial, Section 5, Financial intermediary, Ministry of Social Affairs, Elasticity, National bank, Government, Developed country, Cell, Tarazi, Wealth, Publishing, Springer Nature, Prudential, Marketing, Law, The Economic Journal, Lerner, L16, Business economics, OECD, International Monetary Fund, Section 4, Database, Section 3, Krieger, EMU, Section 2, Pressure, Central bank, Economics Letters, Bank, Jorgenson, Character, Sparkassen-Finanzgruppe, Life, EDS, American Economic Review, K2, Appendix, Applied economics, CEE, Palgrave Macmillan, Livret A, Bell Labs, GDP, Part, Country, Public policy, De Economist, Management, Publication, Motivation, Cooperative, Reproduction, IMF, Edward Elgar Publishing, Housing, Handbook, G21, Real estate

Abstract

Key Points:

Abstract
This paper extends Boone (2008) by introducing a competition measure at the individual
firm level rather than for an entire market segment.
We apply this extended Boone indicator to individual bank-level competition
in the loan market in the four largest euro area countries and Austria.
Our new measure of firm-level competition enriches and complements
other competition measures and provides a promising starting point for future market
power analyses.
The only measure among non-structural measures that is based on the
concept of competition as a process of rivalry is the Boone (2008) indicator.
We introduce
a new performance measure of competition by extending the Boone indicator to the
individual firm level.
Introduction
The ability to reliably measure competition is valuable to researchers, analysts, and
policymakers, especially antitrust authorities, financial supervisors, and central banks.
One broad
category of indicators often used to measure competition are structural competition
measures, such as static concentration measures, and dynamic measures, e.g., entry and
exit rates.
Out of these measures, the only measure based on the
concept of competition as a process of rivalry is the Boone indicator.
This study introduces a new performance measure of competition by extending the
Boone indicator to the individual firm level.
It thus measures the
increase in profits in percent of one percentage point increase in efficiency, with marginal
costs as measure of efficiency.
We extend the theoretical
underpinning of the measurement of competition for the entire market of Boone (2008) by
a new measure of individual firm-level competition.
A concern of the literature is the gap
between the practical application and the theoretical framework of Boone (2008).
We introduce within the same theoretical
framework a new measure of competition on firm level, the MRP.
Our new
measure significantly augments the antitrust evaluative framework by shedding light on
whether a merger results in a less competitive market.
Our novel indicator focuses on
firms? incentives to enhance their relative efficiency, as manifested in the elasticity
between relative profits and efficiency.
However, an inefficient firm that is foreclosed could be more
competitive than the larger efficient firm that relies on its scale economies.
Our new metric of competition unveils
banks? ability to influence their profitability in the short term by cutting costs relative to
their peers.
The new MRP indicator provides the ability to assess the impact
of individual banks? competitiveness on their interest rate-setting behaviour in loan
markets.
Incorporating this information promises a more refined understanding of the impact and
timing of monetary policy rates changes on the real economy.
Section 3 introduces within the Boone
(2008) theoretical framework our new measure of individual firm-level competition,
including the interpretation of the MRP.
Section 4 provides an application of our new
ECB Working Paper Series No 2925
6

individual firm-level competition measure to the loan market.
The StructureConduct-Performance paradigm (SCP) provides a traditional framework in the field of
industrial organization for analysing competition behaviour in markets.
Concentrated
markets ease the possibilities to collude implicitly or explicitly and therefore concentrated
markets result in higher prices and profits.
For example, a tougher competition
setup may lead to a reallocation of market shares, potentially forcing some firms to exit
the market.
This approach gives firms? strategic behaviour
central stage and focuses on the strategic interaction on prices and quantities, known as
conjectural variation.
Another measure from
this strand of literature is the H-statistic developed by Panzar and Rosse (1987).
The only competition measure from this performance literature where competition is the
outcome from a process of rivalry is the Boone indicator.
A continuous and monotonically increasing relationship exists between
RPD and the level of competition if firms are ranked by decreasing efficiency.
(2013) compare the Boone indicator with the price-cost margin
and conclude that the profit elasticity is a more reliable measure of competition.
The high
elasticity of profits to efficiency unequivocally indicates that the high market shares and
therefore high profits are due to high efficiency.
A firm that quickly passes changes to the input prices is seen as a price
taker with little market power.
Indicators of competition tend to measure different phenomenon and may provide
conflicting messages, as reported for European banking by Carbo et al.
Application 2: Test the ?quiet life? and related market structure hypotheses using the
MRP as competition or market structure measure.
Data
Our application to individual bank-level competition in the euro area loan market uses
balance sheet and income statement data from the Moody?s Analytics BankFocus for the
calendar years 2013-2020.
As such, most publications
on competition in the euro area includes the largest four member states.
Due to these restrictions the database was reduced to an unbalanced panel of up to 1862
banks (depending on the year) from five euro area countries.
Application 1: Measure bank competition using MRP
Looking at the distribution of the MRP for individual banks (Fig.
A similar finding for the four largest euro area countries as a group is
reported in Carbo et al.
Application 2: Test of market structure hypotheses using MRP
Our new measure of individual-bank competition can be used to test market structure
theories.
Euro area banks? market power,
lending channel and stability: the effects of negative policy rates, European Central Bank
Working Paper, 2790 (February).
A
new approach to measuring competition in the loan markets of the euro area, Applied
Economics, 43 (23), 3155?3167.
Impact of bank competition on the interest rate pass-through in the euro area, Applied
Economics, 45 (11), 1359?1380.

Isabel Schnabel: R(ising) star?

Retrieved on:

Mercoledì, Aprile 3, 2024

Reproduction, Economy, Faculty, Shousha, Journal of Economic Perspectives, Frankfurt, Climate, Second, Goodhart, History, BIS, Fit, Del Negro, Life expectancy, DFR, Investment, International Renewable Energy Agency, European Commission, USD, International economics, Policy, Corporation, Journal of International Economics, Speech, Black, Industrial Revolution, Innovation, IRENA, ECB, Observation, Communication, University of Cambridge, Zombie, International Monetary Fund, MIT Press, Watcher, Ferreira, Black Death, Canadian International Council, Federal, NBER, Weather, Federal Reserve Bank, Climate change, Longevity, Green, COVID-19, Intelligence, Spitzer, European University Institute, Journal, Research, Harvard Business School, SMA, University, Private sector, EMU, Education minister, Literature, Retirement, EIB, Bank of England, Feedback, Financial economics, Quarterly Journal of Economics, European Central Bank, The, Civil service commission, Uncertainty, Conference, Pressure, Faculty (division), Growth, Journal of Financial Economics, MIT, Anatomy, Society, Bank, Revolution, Quarterly Review, Productivity, IMF, Federal Reserve, Thought, Working paper, Rogoff, Renewable energy

This box investigates how households have responded to the 2021-23 inflationary episode using evidence from the ECB’s Consumer Expectations Survey.

Key Points:

This box investigates how households have responded to the 2021-23 inflationary episode using evidence from the ECB’s Consumer Expectations Survey.
The findings suggest that households have primarily adjusted their consumption spending to cope with higher inflation.

Speculation in oil and gas prices in times of geopolitical risks

Retrieved on:

Mercoledì, Aprile 3, 2024

Overall, speculation has only a limited role in both oil and gas price dynamics, although the degree of speculation is somewhat higher in European gas markets than in US gas markets.

Key Points:

Overall, speculation has only a limited role in both oil and gas price dynamics, although the degree of speculation is somewhat higher in European gas markets than in US gas markets.
Empirical estimates also suggest that the role of speculation in amplifying the transmission of fundamental shocks to oil prices is limited, including in times of heightened geopolitical risk.

The impact of regulatory changes on rating behaviour

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Martedì, Aprile 2, 2024

Długosz, Disagreement, Pi bond, Direct lending, Key, Research Papers in Economics, Finance Secretary (India), University of Oxford, STS, Journal of Economic Perspectives, International, American Economic Review, Life, Columbia Business School, British Academy of Management, Risk assessment, ABS, Rating, EBA, Development, Reputational damage, OBS, CRA, Bond credit rating, Cras, Journal of Monetary Economics, CDO, Becker, Paper, 2007–2008 financial crisis, Raja, University, Environment, Journal of Financial Economics, Perception, H3, Website, Securitization, Working paper, Market, Collection, Total, European Banking Authority, Quarterly Journal of Economics, BBB, Whetten, Column, ESMA, European Journal, Issuer, Asset quality, Information revolution, Federal Reserve Bank, OLS, Statistics, PDF, Private, ECB, Surety, Weighted-average life, CCC, European Commission, Social science, Journal of Financial Stability, JEL, Real, Bias, Journal, Research, Classification, Certification, Commission, Credit, The Journal of Finance, Literature, Karel Škréta, European Central Bank, AA, Finance Research Letters, Origination (telephony), Monetary economics, Section 5, Xia, Kraft Foods, Government, AAA, Mukherjee, Finance, Deku, DOI, White, Risk, IOSCO, MBS, OECD, Wang, Section 4, University Challenge 2013–14, Section 3, Ashcraft, Financial management, Accounting, Financial economics, Fannie Mae, Conference, Pressure, Central bank, Griffin, University of Michigan, Systematic review, EPRS, Freddie Mac, Loan, BCBS, Palgrave Macmillan, R2, Microeconomics, Quarterly Journal, Financial statement analysis, The Japanese Economic Review, Christian Social Union (UK), Green, University of Huddersfield, PSM, Management, Security (finance), Security, Civil service commission, Private placement, American Economic Journal, GFC, Reproduction, IMF, Small business, Trustee, Data

Abstract

Key Points:

Abstract
We examine rating behaviour after the introduction of new regulations regarding Credit Rating
Agencies (CRAs) in the European securitisation market.
There is empirical evidence of rating catering in the securitisation market in the pre-GFC period (He et al.,
2012; Efing and Hau, 2015).
Competition among
CRAs could diminish ratings quality (Golan, Parlour, and Rajan, 2011) and promotes rating shopping by
issuers resulting in rating inflation (Bolton et al., 2012).
This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market.
In 2011, in addition to the creation of
European Securities and Markets Authority (ESMA), a regulatory and supervisory body for CRAs was
introduced.
We examine how rating behaviours have changed in the European securitisation market after the
introduction of these new regulations.
We utilise the existence of multiple ratings and rating agreements between
CRAs to identify the existence of rating shopping and rating catering, respectively (Griffin et al., 2013; He
et al., 2012; 2016).
We find that the regulatory changes have been effective in tackling conflicts of interest between issuers
and CRAs in the structured finance market.
Rating catering, which is a direct consequence of issuer and
CRA collusion, seems to have disappeared after the introduction of these regulations.
There is empirical evidence of rating catering in the securitisation market in
the pre-GFC period (He et al., 2012; Efing and Hau, 2015).
Competition among CRAs could diminish ratings quality (Golan, Parlour,
and Rajan, 2011) and promotes rating shopping by issuers resulting in rating inflation (Bolton et
al., 2012).
This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market.
In 2011, in addition
to the creation of European Securities and Markets Authority (ESMA), a regulatory and
supervisory body for CRAs was introduced.
We find that the regulatory changes have been effective in tackling conflicts of interest
between issuers and CRAs in the structured finance market.
Rating catering, which is a direct
consequence of issuer and CRA collusion, seems to have disappeared after the introduction of
these regulations.
Investors who previously demanded higher spreads for rating agreements for a
multiple rated tranche, did not consider the effect of rating harmony as a risk in the post-GFC
period.
Regarding rating shopping, we find that the effectiveness of the changes has been limited,
potentially for two reasons.
Additionally, we also find that rating over-reliance might still be an issue, especially
Rating catering is a broad term and it can involve rating shopping.
They re-examine the rating shopping and rating
catering phenomena in the US market by looking at the post-crisis period between 2009 and 2013.
Using 622 CDO tranches, they also observe the existence of rating shopping and the diminishing
of the rating catering.
Firstly, our main focus is the EU?s CRA Regulation and its effectiveness in reducing
rating inflation and rating over-reliance.
To the best of our knowledge, this paper is the first to
examine the effectiveness of the EU?s CRA regulatory changes on the investors? perception of
rating inflation in the European ABS market.
Hence, the coverage and quality of our dataset constitutes significant addition
to the literature and allows us to test the rating shopping and rating catering more authoritatively.
The following section reviews the literature
on securitisation concerning CRAs and conflicts of interest, and outlines the regulatory changes
introduced in the post-GFC period.
Firstly, ratings became ever more important as the Securities and
Exchange Commission (SEC) 5 began heavily relying on CRA assessments for regulatory purposes
(i.e.
the investment mandates that highlight rating agencies as the main benchmark for investment
eligibility) (SEC, 2008; Kisgen and Strahan, 2010; Bolton et al., 2012).
issuers) as one of the main explanations for the rating inflation (He et al., 2011; 2012; Bolton
et al., 2012; Efing and Hau, 2015).
Bolton et al., (2012) demonstrate that competition
promotes rating shopping by issuers, leading to rating inflation.
The last phase, CRA III, was implemented in mid-2013 and involves an additional
set of measures on reducing transparency and rating over-reliance.
As mentioned above, rating inflation can be caused by rating shopping
In order to be eligible to use the STS classification, main parties (i.e.
The higher the difference in the number of ratings for a
given ABS tranche, the greater the risk of rating shopping.
Alternatively, the impact of the new
regulations could be limited when it comes to reducing rating shopping.
This is because, firstly,
the conflict of interest between securitisation parties is not necessarily the sole cause for the
occurrence of rating shopping.
L is a set of variables (Multiple ratings, CRA reported, Rating agreement) that
we utilise interchangeably to capture the rating shopping and rating catering behaviour.
Hence, issuers are incentivised to report the highest possible rating and
ensure each additional rating matches the desired level.
All in all, our results suggest that
the new stricter regulatory measures have been effective in tackling conflicts of interest and
reducing rating inflation caused by rating catering.
Self-selection might be a concern in analysing the impact of the
new measures and investors? response with regard to the rating inflation.
This
result is in line with the earlier findings suggesting that regulatory changes have reduced investors?
suspicion of rating inflation and increased trust of CRAs.
Conclusion
Several regulatory changes were introduced in Europe following the GFC aimed at tackling
conflicts of interest between issuers and CRAs in the ABS market.
Utilising a sample of 12,469
ABS issued between 1998 and 2018 in the European market, this paper examined whether these
changes have had any impact on rating inflations caused by rating shopping and rating catering
phenomena.
We find that the
effectiveness of the changes has been more limited on rating shopping potentially for two reasons.
Tranche Credit Rating is the rating reported for a tranche at launch.

Consumer participation in the credit market during the COVID-19 pandemic and beyond

Retrieved on:

Martedì, Aprile 2, 2024

Tax, BLS, Face, La Cava, Liquidity, Journal of Economic Perspectives, Special, MRO, Recovery, Next Generation, Child, Interview, Transport, Attanasio, Consumer behaviour, DFR, Research Papers in Economics, Post-Keynesian economics, Gross domestic product, .177 caliber, Great Moderation, European Commission, Vaccine, Employment, Loan, PDF, Hall, House, ECB, Unemployment, Risk, Shock, Education, Rutgers University Press, Quarterly Journal, Policy, Real estate economics, EU Council, Woman, HHS, World Health Organization, Section 4, Clutch (eggs), MIT Press, Omicron, De Nederlandsche Bank, Social science, Federal Reserve Bank, Modigliani, EDS, JEL, Christian Social Union (UK), Female, Section 3, COVID-19, The Journal of Finance, Journal, Classification, News, Journal of Monetary Economics, Oxford Economic Papers, Death, Insurance, Journal of Economics, FRB, FED, Credit, HFCS, Economy, Deficit reduction, Vaccination, Princeton University Press, Literature, CES, Application, University of Oxford, Paper, R.E, Quarterly Journal of Economics, Section 2, European Central Bank, Civil service commission, C23, COVID, Conference, European Council, Central bank, Lifting, HH, Political economy, Consumer confidence index, European Parliament, MIT, RRF, Monetary economics, Household, Perception, Section 5, Bank, Structure, Reproduction, Website, HICP, Aimé Dossche, Working paper, Housing, Cambridge, Massachusetts, Heart, Fabbri, American Economic Review, Partner, Data, Collection, Probability, Government, Real estate

We find that credit demand is highest when

Key Points:

We find that credit demand is highest when
the first lockdown ends and it drops when supportive monetary compensation schemes are implemented.
Credit is more likely to be
accepted under favourable borrowing conditions and after the approval of national recovery plans.
We also find
that demographic, economic factors, perceptions and expectations are associated with the demand for credit and
the credit grant.
First, it adds to a rapidly growing literature on household
borrowing behaviour during the COVID-19 pandemic; see, for example, Ho et al.
We provide evidence that credit applications and credit acceptances display a different pattern over
time.
Credit is more likely to be accepted under favourable borrowing conditions and after the
approval of national recovery plans.
In almost all countries
households are significantly less likely to apply and to get their credit approved than in Germany.
In line with literature, we show that
demographic and economic factors affect the probability for credit applications and credit approval.
In addition,
the paper shows that consumer perceptions and expectations matter when they decide to apply for credit.
Introduction
The participation of households in the credit market receives wide attention in the consumer finance literature
because consumer credit enters the monetary policy transmission mechanism through the so-called ?credit
channel?: changes in credit demand and supply have an effect on consumers' spending and investment, which in
turn affect economic growth.
We use microdata from the ECB?s Consumer Expectations Survey (hereinafter CES), a survey that
measures consumer expectations and behaviour in the euro area.
Its panel dimension allows for an assessment of
how consumer behaviour changes over time and how consumers respond to critical economic shocks.
This way we can gauge how credit applications and credit acceptances change under different, almost
opposite, borrowing conditions.
We also distinguish between the demand for long-term secured loans (mortgages) and for short-term
uncollateralized loans (consumer loans).
ECB Working Paper Series No 2922
3

We use probit models to estimate the probability of the consumer to apply for credit and the credit being granted.
The rate peaks in 2020Q3 which reflects the rebound in the demand for loans when the first lockdown ended.
In almost all countries households are significantly less likely
to apply and to get their credit approved than in Germany.
However,
when it comes to credit acceptance, we observe that the two groups of households are more similar.
Finally, we find some heterogeneity with respect to the type of credit, particularly between secured and unsecured
debt.
The demand for
consumer credit is insignificant for liquid households and decreases significantly for constrained households in
the last two quarters of our timespan.
The first consists of a recently growing literature which
explores consumer behaviour in the credit market during the COVID-19 pandemic, mostly in the United States.
Sandler and Ricks (2020) show that consumers did not use credit card debt for financial liquidity in the early stage
of the COVID-19 pandemic.
(2020) report that credit card applications and new mortgage loans
declined during the first months of the pandemic in regions with more unemployment insurance claims.
Lu and
Van der Klaauw (2021) show that there was a sharp drop in consumer credit demand, especially for credit cards.
(2022) document that there was a substantial decrease in the usage of credit cards and home equity lines
of credit by Canadian consumers.
Our paper is also consonant with studies on the association between financial and demographic factors and
consumers? participation in the credit market as well as on the demand for specific types of credit.
January 2020 ? October 2020 - The two main events are the outbreak of the COVID-19 pandemic and the
consequential lockdowns in the euro area.
4 If the
respondent has applied for more than one type of credit, she is asked to refer to the most recent credit application.
Between 2021Q3 and 2022Q3 the acceptance
rate stays above the average values, mirroring the easing of credit standards for consumer credit and other lending
to households during this period.
Second, we can investigate the presence of nonlinearities in how liquidity and the credit type interact in explaining credit applications.
(2023) ? who show that in the United States the local pandemic severity had a strong
negative effect on credit card spending early in the pandemic, which diminished over time.
First, we select mortgages and consumer credit as the two mostly reported categories for secured and
13

The full estimation results are reported in Table 3.
The right-hand side panel of Figure 6 shows that the demand for consumer credit is insignificant for both liquid
and illiquid households.
It also shows that
subjective perceptions of credit access, financial concerns and expectations on interest rates matter for the demand
for credit.
In Bertola, G., Disney
R., and Grant, C. (eds) The Economics of Consumer Credit, Cambridge MA, MIT Press.
Horvath, A., Kay, B. and Wix, C. (2023) The COVID-19 shock and consumer credit: Evidence from credit card
data.
Magri, S. (2007) Italian households? debt: The participation to the debt market and the size of the loan.

Isabel Schnabel: From laggard to leader? Closing the euro area’s technology gap

Retrieved on:

Sabato, Febbraio 17, 2024

Eurofi, Lecture, NGEU, Research, European Economic Association, GameChanger, Artificial intelligence, European Investment Bank, Education, Investment, Mining, Invention, Quarterly Journal of Economics, Growth, Superstar, Commerce, MIT Press, Labour economics, GDP, Health, Christian Social Union (UK), Climate change, History, Information technology, CompStat, Applied economics, ICC, Policy, Apple, Public policy, Diagnosis, Federal Reserve, European Parliament, Literature, NBER, Ageing, International economics, Software, Metal, Productivity, New Vision (newspaper), Review of World Economics, Recovery, Next Generation, Computer, MIT, Journal of Labor Economics, Nicolaus Copernicus, Journal of Monetary Economics, Craft, EDIS, European Fiscal Board, Howitt, International Chamber of Commerce, Financial management, Council, Journal, Electricity, Congress, Nobel, American Economic Journal, Transatlantic, Communication, Environment, Journal of Economic Perspectives, European Commission, American Economic Review, European Economic Review, Capital market, Economic impact analysis, Indicator, Demography, World War II, Paul Krugman, Single market, RRF, Macroeconomics, IMF, Daniel Schwaab, Frankfurt, Conference, Aggression, Carbon, Civil service commission, European Central Bank, Rise, Business, Labor share, Skill, Democracy, Heart, Quarterly Journal, E.F, Speech, Public, Public sector, OECD, Reproduction, Internet, Monetary economics, Fabiani, AI, Labour, Intangibles, Paper, Government, Competition, Economic and monetary union, Journal of International Economics, Organization, Treaty, Diffusion, Observation, Autumn, COVID-19, Resilience, Amazon, Role, Hand, Lost, EMU, Unemployment, ECB

This paper, by means of a DSGE model including heterogeneous firms and banks, financial frictions and prudential regulation, first shows the need of climate-related capital requirements in the existing prudential framework.

Key Points:

This paper, by means of a DSGE model including heterogeneous firms and banks, financial frictions and prudential regulation, first shows the need of climate-related capital requirements in the existing prudential framework.
We further show that relying on microprudential regulation alone would not be enough to account for the systemic dimension of transition risk.

The macroeconomic effects of global supply chain reorientation

Retrieved on:

Sabato, Febbraio 10, 2024

Bank, Control, Quarterly Journal of Economics, Literature, Deutsche Bundesbank, Reconstruction, COVID-19, Monetary policy, Medical classification, Aggregate, Interest, Hail, Motion, Organization, WT, Policy, Smith, Elasticity, American Economic Review, Information, CHiPs, Journal of Economic Perspectives, Reproduction, Tagliapietra, Culture, Journal of International Economics, Section 3, European Commission, Communication, B16, Shock, NTM, European Chips Act, SSC, PHT, B17, Classification, Common, Tradability, Bank of Italy, Congressional Research Service, NT, Central bank, Private, Exercise, NIU, Labour, PDF, Website, European Parliament, Terrorism, Employment, B10, SUBST, Agricultural economics, F62, RTK, Bank of England, European Central Bank, Calibration, Agriculture, Foreign policy, Semiconductor, International Monetary Fund, Research Papers in Economics, Outline, Council, Openness, Bias, Economic system, European Council, Public policy, Deutsch, Statistics, GDP, Real, American Economic Journal, Table, Journal, YT, EAGLE, Household, Grossman, Science, Conference, Journal of Comparative Economics, Horse, SSRN, TC, Consumption, REA, F13, Section 2, University, Section 5, Legislation, Money, NTD, Central Bank of Ireland, Language, Capital, University of Limerick, Intermediate, CBI, Caselli, Macroeconomics, Crowding, Technical report, B14, Tax, Civil service commission, Growth, Commission, UNCTAD, Optimism, Politics, PIM, PX, Work, Social science, JEL, Government, Automation, HTT, Quarterly Journal, Canadian International Council, ECB, XT, METRO, ELAS, Credit, Bolt, Research, European Communities, American Journal, ArXiv, Unilateralism, Lerner, Motivation, International, C6, Committee, Security (finance)

We analyse the macroeconomic

Key Points:

We analyse the macroeconomic
effects of supply chain reorientation through localisation policies, using a global dynamic
general equilibrium model.
While arguments about comparative advantage, the potential forgone benefits of international specialisation and industry- and product-specific disruptions are familiar, there is less
analysis on the macroeconomic effects of supply chain changes resulting from localisation policies.
The large sensitivity of the global economy to the recent supply chain shocks suggests that
the international trade reconfiguration implied by localisation policies could also have sizable
impacts on key macroeconomic variables such as output, employment and inflation.
Thus, localisation focuses on the
goods in our model most closely related to global supply chains.
Retaliation also attenuates any positive effects from
reshoring on output and implies a reduction in the volume of overall international trade.
This finding calls for limiting the scope of reshoring, such as by focusing on vital goods that are
most susceptible to supply chain disruptions.
Either that, or the economic costs are considered a worthwhile trade-off for an increase
in security of supply, for example.
While arguments about comparative advantage, the potential forgone benefits of international specialisation and industry- and product-specific disruptions are familiar, there is less
analysis on the macroeconomic effects of supply chain changes resulting from localisation policies.
Recent supply chain shocks have had large effects, with disruptions in 2021 estimated
to have reduced euro area GDP by around two percent and doubled the rate of manufacturing producer inflation (Celasun et al., 2022).
To analyse this issue, we simulate a (partial) reshoring of production back to Europe in
a global dynamic general equilibrium framework.
Thus,
localisation focuses on the goods in our model most closely related to global supply chains.3 We
model reshoring through a direct change to the export goods? production-function parameters.
Since reshoring
effectively shortens the supply chain, the sum of markups along the chain falls.
This means that imports that are at the end of the supply chain (i.e.
In particular, our work relates to papers examining the potential for countries to reduce
their exposure to global supply chains.
(2021) demonstrate that reduced reliance on foreign inputs does not mitigate pandemicinduced contractions in labour supply.
(2021) find no evidence of a relationship
between global value chain integration and macroeconomic volatility.
This dynamic, along with factors such as natural disasters, climate-change
induced volatility and terrorism mean that supply chain disruptions could be a new normal
(Grossman et al., 2021).
Our work contributes to the literature providing dynamic general equilibrium analyses of
protectionist policies, in particular those using global macroeconomic models to quantify trade
policy changes.
(2008) analyse the effect of a rise in protectionism in response
to rising global trade imbalances.
Linde? and Pescatori (2019) find that although the macroeconomic costs of a
trade war are substantial, a fully symmetric retaliation is the best response.
(2020) consider a rich input-output structure and demonstrate that closer integration amplifies
the adverse effects of protectionist trade policies.
Several recent studies have also examined the economic effects of a global trade fragmentation.
First, we modify a dynamic general
equilibrium model of the global economy in order to analyse the transmission of localisation
policies.
This allows for a comprehensive treatment of cross-border macroeconomic interdependences and spillovers between the different regions.
4
There is, however, substantial cross-country heterogeneity in terms of impact, with small open economies
(SOEs) reliant on global supply chains more affected.
ECB Working Paper Series No 2903
7

Second, we are able to assess both long-run effects and the transition dynamics of localisation
policies.
Our model contains a detailed monetary block and captures inflation dynamics, which is a key
concern for supply chain reorientation.
Overall, our paper contains a careful analysis of the key aspects of the localisation debate,
including effects of localisation on domestic competition and efficiency.
Section 2 provides a brief overview of the model, the modifications to examine
global supply chain reorientation, some key details on the calibration and a brief discussion of
the nature of our exercise.
(2020) for discussions of the relative strengths and weaknesses of
trade and macroeconomic models in assessing large economic shocks.
2.1
Supply chain reorientation

Our analysis focuses on imported inputs used to produce goods for export, as the introduction
of localisation policies is in response to recent disruptions to global supply chains.
Since reshoring
effectively shortens the supply chain, the sum of markups along the chain falls.
Further to
these effects, engagement with global firms provides an opportunity for knowledge spillovers to
local firms (Criscuolo et al., 2017).
This finding calls for limiting the scope of reshoring, such as by focusing on vital goods that are
most susceptible to supply chain disruptions.
(B12)
Adjusting the share of local inputs in export goods, of course, affects prices and quantities all
along the supply chain.

Hawkish or dovish central bankers: do different flocks matter for fiscal shocks?

Retrieved on:

Mercoledì, Gennaio 3, 2024

This column presents evidence on the role that US monetary policy plays in how fiscal spending affects the economy.

Key Points:

This column presents evidence on the role that US monetary policy plays in how fiscal spending affects the economy.
A dovish Federal Open Market Committee (FOMC) delays policy rate increases, while a hawkish FOMC tightens monetary policy more promptly, following increased fiscal spending.