Low Economic Activity Research Articles

РЕГИОНАЛЬНОЕ НЕРАВЕНСТВО КАК УГРОЗЫ БЕЗОПАСНОСТИ В РОССИИ (Regional Disparity as Security Threats in Russia)

Russian Abstract: Проблема влияния качества жизни населения на его развитие, на развитие общества и обеспечение безопасности государства, безусловно, важна. Низкая экономическая активность и социально-экономическая отсталость оказывают негативное влияние на развитие российских регионов. В современных условиях происходит дифференциация норм образа и качества жизни. Актуальность данной проблемы очень велика. Особенно неравенство регионов влияет на образование, а вследствие – на будущую рабочую силу, культуру страны. Хоть мы и слышим регулярно о развитии наших школ, высших учебных заведений, все равно разница заметна: между получением образования в крупных городах и небольших селах в дальних уголках России English Abstract: The problem of the impact of the quality of life of the population on its development, on the development of society and ensuring the security of the state is certainly important. Low economic activity and socio-economic backwardness have a negative impact on the development of Russian regions. In modern conditions, there is a differentiation of standards of lifestyle and quality of life. The relevance of this problem is very high. Especially regional inequality affects education, and as a result-the future labor force and culture of the country. Although we regularly hear about the development of our schools and higher education institutions, the difference is still noticeable: between getting an education in large cities and small villages in the far corners of Russia.

Predicting Bond Return Predictability

This paper provides empirical evidence on predictable time variations in out-of- sample bond return predictability. Bond return predictability is associated with periods of high (low) economic activity (uncertainty), which implies that violations of the expectations hypothesis are state-dependent and linked to features of the business cycle. These state-dependencies in predictability, established by introducing a new multivariate test for equal conditional predictive ability, can be used in real-time to improve out-of-sample bond risk premia estimates and investors’ economic utility through a novel dynamic forecast combination scheme that uses predicted forecasting performance to identify the best set of methods to include in the combined forecast. Dynamically combined forecasts exhibit strong countercyclical behavior and peak during recessions.

Regional Disparities in the Relationship between Economic Growth and Unemployment

The imbalance of the economic and social level between territorial units is a problem of many countries, including Slovakia. In addition to product losses, the absence of labor incomes of lagging territorial units and their reduced ability to develop independently appear to be a problem. The reason for such a situation may be low economic activity as well as a weak relationship between employment in some regions. The aim of this study is to identify differences in the relationship between the rate of economic growth and changes in the unemployment rate in the all regions at the NUTS3 level in Slovakia in the period 1999-2018. To examine the relationship between unemployment and the rate of economic growth, a gap version of Okun's Law was used. A simple linear regression model was constructed for each region at NUTS 3 level. By comparing the values of constructed econometric models, the regional differences and sources of these differences were identified. The results of the analyzes have indicated that there is a direct causal relationship between the change in unemployment and the rate of economic growth in the short term. The correlation coefficients confirmed the negative relationship between GDP growth rate and unemployment. The strength of the relationship across region at NUTS 3 level was differentiated, but in all NUTS 3 regions was statistically significant. The impact of the growth rate on changes in unemployment has been found to be differentiated mainly according to the size of unemployment, as well as the sources and stability of the rate of economic growth and the structure of economic activities.

Mali

The COVID-19 pandemic has added to Mali’s significant security and social challenges. The outbreak reached Mali relatively late, with first confirmed cases on March 24 and 293 cases (seventeen deaths) as of April 22, 2020. The authorities took early containment measures in March and announced a package of economic and social support measures in early April. Growth is expected to decelerate sharply in 2020 as a result of declines in travel, trade, FDI and remittances. Job losses, weak social safety nets amid high informality, food insecurity and a fragile health system will exacerbate social challenges. Lower economic activity and the policy response will exert significant pressures on the budget and the balance of payments, opening financing gaps of 2.9 and 3.1 percent of GDP, respectively.

Credit intermediation and the transmission of macro-financial uncertainty: International evidence

This paper introduces a novel measure of global macro-financial uncertainty and examines the state-dependent transmission of uncertainty to economic activity. We show that global uncertainty shocks have adverse and nonlinear macroeconomic effects, with the nonlinearity being driven by different levels of country-specific banking sector distress. Both macroeconomic and financial market uncertainty are associated with lower economic activity, with the latter exerting stronger effects. The state dependency of the effect is prevalent in both cases. Our findings have important policy implications, highlighting both the state of the banking sector as well as the origin of uncertainty as crucial factors in the transmission of uncertainty.

Political Punishment and Financial Safety Nets: Evidence from India's Demonetization

We analyze the electoral consequences of India’s 2016 ‘demonetization’: a unique policy that unexpectedly made 86% of the currency-in-circulation redundant overnight, and led to severe cash shortages in the subsequent months. We leverage a discontinuity in the number of bank branches arising from a nationwide district-level bank expansion policy, instituted by the previous government in 2005. We first document that the impacts of the branch-expansion policy around the cut-off were meaningful: areas just above the cut-off had fewer bank branches, less outstanding credit, and households were less likely to report having bank accounts. Importantly, these effects strongly persisted in 2016, when the demonetization policy was instituted. As districts with fewer banks had greater cash shortages, we identify the impacts of demonetization at the bank-expansion cut-off. Regression discontinuity estimates show that following demonetization, places with fewer banks had lower economic activity, as measured by nighttime lights, and voters reported having less favorable views on demonetization. Using electoral data and a difference-in-discontinuity design, we find that in elections following demonetization, the ruling party did relatively worse in regions with discontinuously fewer banks, receiving a 4.7 percentage point lower fraction of votes. We finally show that voters that were historically strongly aligned with the ruling party, are nearly unresponsive in voting behavior, despite having a less favorable view of the policy itself.

Investor experiences and international capital flows

We propose a novel explanation for classic international macro puzzles regarding capital flows and portfolio investment, which builds on modern macro-finance models of experience-based belief formation. Individual experiences of past macroeconomic outcomes have been shown to exert a long-lasting influence on beliefs about future realizations, and to explain domestic stock-market investment. We argue that experience effects can explain the tendency of investors to hold an over proportional fraction of their equity wealth in domestic stocks (home bias), to invest in domestic equity markets in periods of domestic crises (retrenchment), and to withdraw capital from foreign equity markets in periods of foreign crises (fickleness). Experience-based learning generates additional implications regarding the strength of these puzzles in times of higher or lower economic activity and depending on the demographic composition of market participants. We test and confirm these predictions in the data.

Political Punishment and Financial Safety Nets: Evidence from India's Demonetization

We analyze the electoral consequences of India’s 2016 ‘demonetization’: a unique policy that unexpectedly made 86% of the currency-in-circulation redundant overnight, and led to severe cash shortages in the subsequent months. We leverage a discontinuity in the number of bank branches arising from a nationwide district-level bank expansion policy, instituted by the previous government in 2005. We first document that the impacts of the branch-expansion policy around the cut-off were meaningful: areas just above the cut-off had fewer bank branches, less outstanding credit, and households were less likely to report having bank accounts. Importantly, these effects strongly persisted in 2016, when the demonetization policy was instituted. As districts with fewer banks had greater cash shortages, we identify the impacts of demonetization at the bank-expansion cut-off. Regression discontinuity estimates show that following demonetization, places with fewer banks had lower economic activity, as measured by nighttime lights, and voters reported having less favorable views on demonetization. Using electoral data and a difference-in-discontinuity design, we find that in elections following demonetization, the ruling party did relatively worse in regions with discontinuously fewer banks, receiving a 4.7 percentage point lower fraction of votes. We finally show that voters that were historically strongly aligned with the ruling party, are nearly unresponsive in voting behavior, despite having a less favorable view of the policy itself.

Uncertainty, Wages, and the Business Cycle

We show that occasional deviations from efficient wage setting generate strong and state-dependent amplification of uncertainty shocks and can explain the cyclical behavior of empirical measures of uncertainty. Central to our analysis is the existence of matching frictions in the labor market and an occasionally binding constraint on downward wage adjustment. The wage constraint enhances the concavity of firms' hiring rule, generating an endogenous profit-risk premium. In turn, uncertainty shocks increase the profit-risk premium when the economy operates close to the wage constraint. This implies that higher uncertainty can severely deepen a recession, although its impact is weaker on average. Additionally, the variance of the unforecastable component of future economic outcomes always increases at times of low economic activity. Thus, measured uncertainty rises in a recession even in the absence of uncertainty shocks.

Traditional Financial Basis，Knowledge Threshold and Digital Finance for Farmers

This study examines the current relationship between digital finance and traditional finance by using micro survey data. Because of various reasons, there are many blank areas and groups in traditional financial services, especially in remote rural areas. Therefore, the emergent digital finance is expected to fill the blank, and serve the areas and groups that traditional finance has yet served. Meanwhile, expanding business in rural areas has indeed become an important strategy for some Internet finance companies. However, we must clearly realize that the application of new digital financial technology, which is a combination of Internet technology and financial business, needs basic financial knowledge and Internet skills. Without basic financial knowledge and Internet skills, people may not be able to use digital financial services skillfully and effectively. Therefore, although Internet finance could overcome geographical obstacles and cut the cost in remote rural areas with low population density and economic activity density, for the perspective of the demand side, it is not so easy to enjoy these modern digital financial services. Therefore, examining the relationship between traditional financial basis and farmers’ use of digital finance through scientific empirical analysis will contribute to deepen our understanding of the digital financial pattern. In this study, we use the firsthand micro survey data from the Thousand Village Survey of Shanghai University of Finance and Economics to investigate the influence of traditional financial foundation and family members’ education level on the use of digital finance. Using the special survey data of Rural Inclusive Finance will help us to inspect the value of traditional financial basis in influencing rural households to use new digital financial services. We find that the higher the frequency of using traditional finance, the greater the possibility of using digital financial services; and the higher the education level of farmers’ household, the higher the probability of using digital finance. In order to overcome the endogenous problems, we take the time required for family to reach the bank outlet” and how many ATMs in the village” as instrumental variables for the family to use traditional financial services, and carry out two-stage least square regression. In addition, in order to more intuitively examine the relationship among traditional finance, family education level and digital finance, we also make a brief analysis of the reasons why farmers do not use digital finance and the willingness of households who do not use Internet finance at present, which also confirm that the lack of financial basis and education is the strongest marginal obstacle affecting the spread of Internet finance. Digital finance also relies on the mass basis laid down by traditional finance. This study is a supplement to the existing literature, because when discussing the relationship between Internet finance and traditional finance, the existing literature can only start from the macro and policy perspective, lacking the micro basis. From the perspective of policy reference value, it is also of great practical significance for us to understand the practical value of the new digital finance and formulate the rural financial policy of digital finance going into the countryside.

Factores socioeconómicos como impulsores de vulnerabilidad alimentaria

En este trabajo se evalúa la vulnerabilidad alimentaria en los municipios de Nayarit a partir de la construcción de un índice que considera tres variables: desarrollo socioeconómico, inseguridad alimentaria y vulnerabilidad alimentaria. Dentro de los resultados se encuentra que el municipio de Del Nayar se ubica en un nivel muy alto de vulnerabilidad; mientras que Huajicori, Acaponeta, Rosamorada y Ruiz en un nivel alto de vulnerabilidad. Por otra parte, los factores identificados como impulsores de vulnerabilidad son la deficiente dotación de carreteras pavimentadas, la baja actividad económica y el bajo nivel de escolaridad del jefe o jefa de familia.

The effectiveness of fiscal and monetary policies in a small open economy – the case of Macedonia

ABSTRACTIn this article, we use a recursive VAR model to study the macroeconomic effects of fiscal and monetary policies in Macedonia as well as their interactions during 2000–2014. The main findings from our empirical investigation are as follows: first, an increase in public expenditure results in lower economic activity, higher public debt and a loss of foreign exchange reserves; second, an increase in the public revenue has positive output effects accompanied by rising prices, higher foreign exchange reserves and a modest reduction in the public debt; third, a rise in the central bank’s interest rate produces conventional adverse effects on economic activity followed by a decline in the price level; fourth, monetary and fiscal policies act as strategic substitutes; and fifth, our estimates of the fiscal multipliers imply non-Keynesian effects of fiscal policy.

La curva de Kuznets ambiental y su relación con el cambio climático en América Latina y el Caribe: un análisis de cointegración con panel, 1980-2015

Este artículo analiza la relación entre el cambio climático y la actividad económica en América Latina y el Caribe mediante la curva de Kuznets ambiental (cka). Los resultados del modelo de panel con cointegración para las emisiones de CO2 indican la existencia de la cka y la presencia de relaciones de cointegración entre las variables involucradas, por lo que es necesario alcanzar un punto de inflexión superior a 10.134 dólares per cápita (a precios de 2010) para poder estabilizar las emisiones y que, posteriormente, comiencen a reducirse, generando un proceso de actividad económica baja en carbono.

The Effect of Monetary and Fiscal Policy on Bond Mutual Funds and Stock Market: An International Comparison

ABSTRACTThis study examines the relationship between bond fund flows, stock market returns and financial policies in developed and developing economies. The findings suggest a bidirectional (negative) relationship between bond flows and market returns in the presence of fiscal and monetary policy for developed countries. However, in the case of developing countries, bond flows follow the previous performance of market returns. Moreover, an expansionary monetary stance has a negative impact on bond flows while an expansionary fiscal policy exerts a positive influence on them. In addition, bond funds flourish in times of low economic activity in both developed and developing countries.

Cascades and Fluctuations in an Economy with an Endogenous Production Network

This paper proposes a simple theory of production in which the network of input-output linkages is endogenously determined by the firms' decisions to operate. Since producers benefit from having multiple suppliers, the economy features complementarities between the operating decisions of nearby firms. As a result, tightly connected clusters of producers emerge around productive firms. In addition, after a firm is hit by a severe shock, a cascade of shutdowns might spread from neighbor to neighbor as the network reorganizes itself. While well-connected firms are better able to withstand shocks, they trigger larger cascades upon shut down. The theory also predicts how the shape of the network interacts with the business cycle. As in the U.S. data, periods of low economic activity feature fewer well-connected producers and less clustering among firms. Once calibrated, the model predicts that allowing the network to reorganize itself in response to shocks leads to substantially smaller variations in aggregate output, suggesting that endogenous changes in the shape of the production network have a significant impact on the aggregation of microeconomic shocks into macroeconomic fluctuations.

ATTRACTIVENESS OF LATVIAN, LITHUANIAN AND ESTONIAN VENTURE CAPITAL MARKETS FOR INTERNATIONAL INVESTORS

Business start-ups, small and medium sized companies face financial difficulties to finance their innovative activities, which hinders innovative products from commercialization. This mainly results from the high risks and information asymmetries involved in such projects. Standard debt financers are reluctant to take these risks, besides the young enterprises lack collateral to receive the credit. However, the risk tolerance for investors differs as well. One of the alternatives for bank loans is venture capitalists, who rather become partners than creditors of young, innovative companies with growth potential. Particularly venture capital or the so-called “smart money” is what financially supports such business ventures, provides funding for technological transfer and commercialization. The authors of the present paper have chosen to examine and compare the venture capital attraction possibilities in the Baltic States using Venture Capital and Private Equity Country Attractiveness Index (by Groh et al.) data for 2012-2018. Venture capital market development is currently a very topical issue for the Latvian government, taking into consideration the critical importance of venture capital for financing innovation. Becoming the leader in the venture capital sector and No. 1 choice of start-up companies in the Baltics are now the objectives of the government of Latvia. It was therefore relevant and important to compare venture capital attraction possibilities in Latvia, Estonia and Lithuania to see and analyse in which aspects Latvia lags behind its neighbouring countries and in which it succeeds. The paper compares the six main factors or key drivers which determine the attractiveness of venture capital markets. According to Groh et al. (2016), these factors are: 1) Economic Activity; 2) Depth of Capital Market; 3) Taxation; 4) Investor Protection & Corporate Governance; 5) Human & Social Environment and 6) Entrepreneurial Culture & Deal Opportunities. However, the results of the research reveal that the main problems for international investor attraction in the Baltic States are underdeveloped capital markets and low economic activity. Latvia, unfortunately, is the most unattractive for international venture capital investors. Nevertheless, it has experienced the fastest growth during six years, which means that there is potential for becoming a leader in the venture capital sector. The present paper reveals the aspects to be improved for becoming more attractive for venture capital investments.

Is the Cost of a Safer Banking System Lower Economic Activity?

The effect of a stronger bank capital base on economic growth remains unsettled in the literature. We investigate the presence and strength of two transmission channels—financial stability and bank lending channels—to shed more light on the association between bank capital and economic activity. Drawing evidence from 47 advanced and developing countries over close to 2 decades and using a PVAR and a system GMM, we find that higher capital ratios improve financial stability and lending activity, ultimately exerting a positive influence on economic activity. The effect on real GDP growth is economically significant, reaching up to 1¼ percentage points for each percentage point acceleration in capital increases. Our main results are robust to various sensitivity tests, supporting the conclusion that safer banking systems do not bridle economic activity.

Downturns and Changes in the Yield Slope

We show that the slope of the sovereign yield curve not only predicts future economic activity through its level but also through its changes. Our results with US data show that the inclusion of the first difference of the slope in the traditional yield slope regressions significantly increases the explanatory power of the yield curve. Decomposing the yield slope changes into those of the risk-neutral spread and of the term premium also brings insights into future economic activity forecast. We find that, while positive changes to the risk-neutral spread predict lower economic activity in the short-run (1-3 months), positive changes to the term premium predict lower economic activity in the medium run (3-12 months). These results are obtained at both monthly (industrial production, unemployment) and quarterly (GDP growth, unemployment) frequencies and also in probit-type recession regressions.

Flexibility in the market for international carbon credits and price dynamics difference with European allowances

The Paris Agreement establishes a mechanism which allows a Party to benefit from greenhouse gas emissions reductions conducted in a host Party to fulfil its nationally determined contribution. In this context, the objective of this paper is to improve the understanding of carbon offset price dynamics in comparison with regular carbon market allowances. We combine a cointegration approach with risk premium considerations to compare the price dynamics of European Union Allowances (EUA) and Certified Emission Reductions (CER) in the second phase of the European carbon market. By taking account of breaks identified in the series, we find that, while the EUA and CER returns present comparable dynamics mainly driven by fuel switching, the long-term relationships between the price of these two types of permits and their drivers differ significantly. Whereas the price of EUA is well explained by a demand effect, the impact of energy prices on the CER price suggests the existence of a supply-side effect for credits. We find that the price elasticity of allowances with regard to the coal and gas prices is negative in time periods of low economic activity and positive during the remaining time. We explain the former with the fact that the market is not tight and the latter with the effect of the economic activity on the price of commodities and energy.

Dynamic adjustment of fiscal policy under a debt crisis

In an overlapping generations framework that allows for the presence of a debt crisis scenario (debt bubbles), we introduce productive government expenditures, and endogenous deficits through a dynamic fiscal rule that combines fiscal stimulus and fiscal consolidation. We formally argue that a fiscal rule must be pro-cyclical to output for government investment financing and simultaneously has to control for the level of debt adjusting taxation for a policy aiming to escape a situation of exploding debt and low economic activity. Then, when the economy becomes sustainable (or in an economy’s high initial private capital), the same rule, has to endogenously adapt to the actual level of debt and income in order to stimulate private investment through lower taxes. We provide a numerical example for our theoretical results and show that in economies with sufficiently low levels of capital and high levels of debt, the tax rate has to adjust non-monotonically during the recover process, reflecting the two counter-balancing properties of the examined fiscal policy rule. However, under a threshold level of initial capital stock, taxes must adjust monotonically (negatively) to boost private investment activity, and in turn, alleviating the volume of debt though a higher tax base.