Working Papers
2022
September 23, 2022
Did the COVID-19 Recession Increase the Demand for Digital Occupations in the United States? Evidence from Employment and Vacancies Data
Description: This paper investigates whether the COVID-19 recession led to an increase in demand for digital occupations in the United States. Using O*NET to capture the digital content of occupations, we find that regions that were hit harder by the COVID-19 recession experienced a larger increase in the share of digital occupations in both employment and newly-posted vacancies. This result is driven, however, by the smaller decline in demand for digital workers relative to non-digital ones, and not by an absolute increase in the demand for digital workers. While our evidence supports the view that digital workers, particularly those in urban areas and cognitive occupations, were more insulated during this recession, there is little indication of a persistent shift in the demand for digital occupations.
September 23, 2022
Why European Banks Adjust their Dividend Payouts?
Description: Using a panel data approach for two samples of listed and unlisted European banks, this paper provides evidence that, over a decade and a half preceding the pandemic, bank dividend payouts were adjusted in line with the motivations found in the literature. Banks change their dividend payouts because they would like to signal good profitability to shareholders to address information asymmetry, or use dividends to mitigate the agency costs, or could come under pressure from prudential supervisors and regulators to retain earnings. Banks are found not to discount expectations about future economic conditions or their own profitability when making payouts. Simulations show that, in the absence of supervisory sector-wide recommendations to suspend dividend payouts, banks would likely have reduced the payouts only slightly in the first year of the pandemic.
September 23, 2022
Keeping it Simple–Efficiency Costs of Fixed Margin Regimes in Transfer Pricing
Description: Simplifying tax policy comes with costs and benefits. This paper explores simplification options for the taxation of MNEs, an area where administrative and compliance costs of the current rules are large. Simplified approaches seek to reduce these costs by relying on an approximation of the true tax base, potentially distorting resource allocation. We examine the efficiency cost of transfer pricing simplification theoretically and empirically. Using a sample of 300,000 firms located in 22 countries, we estimate that common transfer pricing practices reduce efficiency between 0.25 and 2.2 percent of total factor productivity across sectors. Focusing on the manufacturing sector, we then observe that simplification more than doubles sectoral inefficiency on average. However, large differences exist, with moderate efficiency costs in several sectors.
September 23, 2022
Promoting Innovation: The Differential Impact of R&D Subsidies
Description: We investigate the effect of R&D subsidies on firms’ innovation by ownership, industry, and firm size using German firm-level data. The impact of R&D subsidies is heterogeneous across industries for multinational corporations (MNCs) and domestic firms while it does not differ substantially by firm size. Domestic firms have a larger response in R&D spending in low-tech manufacturing, knowledge-intensive services, and technological services while the response of domestic and foreign MNCs is broadly similar and is greater in medium-tech and high-tech manufacturing. Foreign MNC subsidiaries’ response in terms of patents is greater than that of domestic MNCs in most industries.
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2022
September 16, 2022
U.S. Monetary Policy Shock Spillovers: Evidence from Firm-Level Data
Description: We examine three main channels through which U.S. monetary policy shocks affect firm investment in foreign countries: (1) the balance sheet channel; (2) the financial channel of the exchange rate; and (3) the trade channel. For this purpose, we use quarterly firm-level data for 63 advanced economies (AEs) and emerging market and developing economies (EMDEs) over 1996-2016. Our results suggest an important and independent role for all three key channels. U.S. monetary policy shocks have larger effects on investment for firms that are more leveraged (balance sheet channel), for firms that have a higher share of debt in foreign currency (financial channel of the exchange rate), and for firms that operate in sectors with higher export dependence (trade channel). Back-of-the-envelope calculations suggest that the balance sheet channel is the most important channel of transmission of U.S. monetary policy shocks on aggregate firm investment.
September 16, 2022
Central Bank Independence and Inflation in Latin America—Through the Lens of History
Description: We study the link between central bank independence and inflation by providing narrative and empiricial evidence based on Latin America’s experience over the past 100 years. We present a novel historical dataset of central bank independence for 17 Latin American countries and recount the rocky journey traveled by Latin America to achieve central bank independence and price stability. After their creation as independent institutions, central bank independence was eroded in the 1930s at the time of the Great Depression and following the abandonement of the gold exchange standard. Then, by the 1940s, central banks turned into de facto development banks under the aegis of governments, sawing the seeds for high inflation. It took the high inflation episodes of the 1970s and 1980s and the associated major decline in real income, and growing social discontent, to grant central banks political and operational independence to focus on fighting inflation starting in the 1990s. The empirical evidence confirms the strong negative association between central bank independence and inflation and finds that improvements in independence result in a steady decline in inflation. It also shows that high levels of central bank independence are associated with reductions in the likelihood of high inflation episodes, especially when accompanied by reductions in central bank financing to the central government.
September 16, 2022
Digitalization and Social Protection: Macro and Micro Lessons for Vietnam
Description: The COVID-19 shock has underscored the importance of digital tools for enhancing the effectiveness and efficiency of social protection systems. Cross-country evidence suggests that digital IDs linked with bank and/or mobile money accounts can improve the delivery of social protection programs and better reach eligible beneficiaries. Using data from the Vietnam Household Living Standard Survey, we present micro simulations on the welfare gains of digital social protection during the pandemic. While digitalization offers opportunities, potential risks would need to be carefully managed. Vietnam is advancing on individual pieces of the digitalization puzzle, including full digital IDs and mobile money, and the next step is to put these pieces together.
September 16, 2022
Structural Reforms and Economic Growth: A Machine Learning Approach
Description: The qualitative and granular nature of most structural indicators and the variety in data sources poses difficulties for consistent cross-country assessments and empirical analysis. We overcome these issues by using a machine learning approach (the partial least squares method) to combine a broad set of cross-country structural indicators into a small number of synthetic scores which correspond to key structural areas, and which are suitable for consistent quantitative comparisons across countries and time. With this newly constructed dataset of synthetic structural scores in 126 countries between 2000-2019, we establish stylized facts about structural gaps and reforms, and analyze the impact of reforms targeting different structural areas on economic growth. Our findings suggest that structural reforms in the area of product, labor and financial markets as well as the legal system have a significant impact on economic growth in a 5-year horizon, with one standard deviation improvement in one of these reform areas raising cumulative 5-year growth by 2 to 6 percent. We also find synergies between different structural areas, in particular between product and labor market reforms.
September 16, 2022
OPEC and the Oil Market
Description: This paper studies the historical importance of OPEC for oil price fluctuations. An event-study approach is used to identify the effects of OPEC announcements on oil price fluctuations. Results show that price volatility is higher than typical around OPEC meetings. Also, members' compliance, a proxy for credibility, has strongly fluctuated over time. An ordered multinomial logit framework identifies the main factors that explain OPEC's decisions to cut, maintain, or boost members' oil production and is able to successfully predict OPEC meeting outcomes 66 percent of the time, between 1989 and 2019. Cyclical oil price fluctuations (as opposed to persistent shifts in levels) drive OPEC’s decisions, suggesting that OPEC's objective is to stabilize the oil price rather than countering fundamental shifts in demand and supply. Low OPEC’s market share reduces the probability of a production cut. Finally, the transparency of OPEC's statements has modestly improved between 2002 and 2019.