Working Papers
2022
July 29, 2022
Is Education Neglected in Natural Resources-Rich Countries? An Intergenerational Approach in Africa
Description: The literature on the effects of natural resources on education is mixed and inconclusive. In this paper, we adopt an innovative approach by exploring the effects of mineral discoveries and productions on intergenerational educational mobility (IM), linking parents to the children education levels for more than 14 million individuals across 28 African countries and 2,890 districts. We find that mineral discoveries and productions positively affect educational IM for primary education in Africa for individuals exposed to the mineral sites and living in districts with discoveries. Specifically, the probability of upward primary IM increases by 2.7 percentage points (pp.) following mineral discoveries and 6.7 pp. following mineral productions. Downward primary IM decreases by 1.2 pp. following both mineral discoveries and productions. These positive effects are increasing for individuals born later after discoveries and productions, for males, and individuals living in the urban area. However, no significant effects are found for secondary and tertiary educational IM. Finally, we explore the income and returns to education channels through which mineral discoveries and productions affect educational IM.
July 29, 2022
Economic Growth After Debt Surges
Description: Debt levels, both private and public, were already at record highs before the Covid-19 pandemic, and surged further in 2020. The high indebteness raises concerns whether it will undermine future growth prospects. This paper contributes to the ongoing debate by examining what happens to economic growth after debt surges. We apply a local projection method to a new dataset of debt surges in 190 countries between 1970 and 2020. Our results show that the relationship between debt surges and economic growth are complex. Debt surges tend to be followed by weaker economic growth and persistently lower output. However, this negative relationship does not always hold. Surges in public debt tend to have the most negative impact on future growth prospects. This is particularly the case if the economy is already operating with a large positive output gap. Debt surges also tend to be followed by weaker economic growth if the initial debt levels are high, especially for private debt surges. Our results also show how debt surges impact future growth. Public debt surges are associated with especially weaker private and public investment, although both private and public consumption are also negatively affected. Surges in corporate debt are followed by lower private and public investment.
July 29, 2022
Exchange-Rate Swings and Foreign Currency Intervention
Description: This paper develops a new approach for exploring the effectiveness of foreign currency intervention, focusing on real exchange cycles. Using band spectrum regression methods, it examines the role of macroeconomic fundamentals in determining the equilibrium real exchange rate at short-, medium-, and low frequencies. Next, it assesses the effectiveness of FX intervention depending on the degree of cycle-specific misalignments for 26 advanced- and emerging market economies, covering the period 1990–2018, and using different techniques to mitigate endogeneity concerns. Evidence supports the hypothesis that central banks can lean effectively against short-run cyclical misalignments of the real exchange rate. The effects are present in quarterly data—i.e., at policy-relevant horizons. The effectiveness of intervention rises with the size of the misalignment, and with the duration of one-sided interventions. FX sales appear to be somewhat more effective than FX purchases, and intervention is less effective in more liquid FX markets.
July 29, 2022
Do IMF Programs Stimulate Private Sector Investment?
Description: This paper provides new evidence on the role of IMF programs in stimulating private sector investments. Using detailed firm-level data on tangible fixed assets and a local projection methodology, we first estimate the dynamic response of firm investments to the approval of an IMF arrangement. We find that distinguishing between GRA and PRGT financing matters for the path of firm investment and its growth, and we also document the presence of two financial channels; the degree of firms’ external financial dependence and firms’ sectoral uncertainty. Exploiting these firm-level characteristics, we employ a difference-in-differences approach to understand the mechanisms through which the approval of an IMF arrangement propagates in the private sector. We find that the more firms rely on external finance and the more they are subject to uncertainty, the less binding these financial frictions become, and hence the more firms invest following a program approval. Finally, using ownership data, we find that private investments are stimulated more for domestic firms. The presence of a private investment transmission channel could help improve our understanding of what factors could affect the success and effectiveness of IMF programs.
July 29, 2022
Legal Gender Equality as a Catalyst for Convergence
Description: The unequal treatment of women in the law is one of the most visible forms of gender inequality. Prevalent legal constraints on the basis of gender prevent women, and thereby economies, from reaching their true potential. In this regard, this paper (i) documents the evolution of gender discriminatory laws around the globe, and (ii) sheds light on the role of legal gender equality in income convergence across countries. It shows that despite the remarkable progress toward gender equality in the law over the last five decades, the legal environment across the world is still far from providing a level playing field for women. Moreover, cross-country gaps in gender discriminatory laws have persisted and even widened over the years, meaning that some countries have lagged behind the progress in repealing the laws that act as a barrier to women’s economic inclusion. Based on a global sample since the 1970s, this paper finds that greater gender equality in the law facilitates cross-country income convergence over time. The results call for action and provide a reason to be optimistic going forward. They imply that legal reforms supportive of gender equality, which could indeed be actionable in the shorter term, help poorer countries catch up with the living standards in the advanced economies. These offer a window of opportunity in the post-Covid-19 period, given the adverse effects of the pandemic on economic growth and gender gaps.
July 28, 2022
Housing Boom and Headline Inflation: Insights from Machine Learning
Description: Inflation has been rising during the pandemic against supply chain disruptions and a multi-year boom in global owner-occupied house prices. We present some stylized facts pointing to house prices as a leading indicator of headline inflation in the U.S. and eight other major economies with fast-rising house prices. We then apply machine learning methods to forecast inflation in two housing components (rent and owner-occupied housing cost) of the headline inflation and draw tentative inferences about inflationary impact. Our results suggest that for most of these countries, the housing components could have a relatively large and sustained contribution to headline inflation, as inflation is just starting to reflect the higher house prices. Methodologically, for the vast majority of countries we analyze, machine-learning models outperform the VAR model, suggesting some potential value for incorporating such models into inflation forecasting.
July 22, 2022
Distributional Effects of Tax Reforms in Japan: Micro-simulation Approach
Description: This paper conducts micro-simulations to study the distributional effects of several tax measures in Japan, considering households’ heterogeneity in terms of both income and wealth. Simulation results suggest that increasing the consumption tax rate and strengthening the recurrent tax on immovable property would weigh more heavily on low-income households with large wealth than on those of comparable incomes with small wealth, and that introduction of a consumption tax credit would be effective in containing a rise in tax burden of low-income households.
July 22, 2022
Fiscal Multipliers During Pandemics
Description: Many countries have deployed substantial fiscal packages to cushion the economic fallout from the COVID-19 pandemic. A historical look at past pandemics and epidemics highlights concomitant public sector support in response to health crises. This paper assesses how fiscal multipliers could vary during health crises, particularly how factors such as social distancing and uncertainty could lower contemporaneous (T) multipliers and increase near-term (T+1 and T+2) multipliers as economies re-open, including due to pent-up demand. Based on Jorda’s (2005) local projection methodology, the paper shows that cumulative fiscal multipliers one year after a health crisis is about twice larger than during normal times, particularly in advanced economies. These results suggest that large-scale fiscal support deployed at the onset of the COVID-19 pandemic could have larger than usual lingering impacts on economic activity, which need to be accounted for when calibrating policies.
July 22, 2022
Sudden Stops and Optimal Policy in a Two-agent Economy
Description: We introduce heterogeneity in terms of workers and entrepreneurs in an otherwise standard Fisherian model to study Sudden Stop dynamics and optimal policy. We show that the distinction between workers and entrepreneurs introduces a distributive externality that is absent from the representative-agent setup. While in tranquil times redistribution is driven by the relative marginal utilities of consumption, the planner additionally favors entrepreneurs during Sudden Stops to mitigate Fisherian deation. Although agentheterogeneity does not add much in explaining the Sudden Stop phenomena, it adds to the understanding of how policies can best be designed to alleviate the negative effects of Sudden Stops.
July 22, 2022
Transitioning to a Greener Labor Market: Cross-Country Evidence from Microdata
Description: This paper builds a new set of harmonized indicators of the environmental properties of jobs using micro-level labor force survey data from 34 economies between 2005 and 2019 and analyzes the labor market implications of the green economic transition and environmental policies. Based on the new set of indicators, the paper's main findings are that greener and more polluting jobs are concentrated among smaller subsets of workers, individual workers rarely move from more pollution-intensive to greener jobs, and workers in green-intensive jobs earn on average 7 percent more than workers in pollution-intensive jobs.