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Working Paper No.966
03 August 2020
Developing a Macro-Micro Model for Analyzing Gender Impacts of Public Policy
AbstractThis paper discusses new methods of combined macro-micro analysis of labor demand and supply to investigate the gender impacts of public policy. In particular it examines how studies have used input-output analysis together with more or less sophisticated methods of allocating people to jobs to model the impact of public investment in care on the gender employment gap and other inequality measures. It presents some results of a cross-country comparison of investment in the care and construction industries, suggesting methodological refinements to take account of the labor supply effects of such investment policies in order to enable a more detailed analysis of who gets the jobs generated and under what conditions of employment to achieve a more accurate assessment of a policy’s full impact on employment inequalities. We argue that such a microsimulation of who is likely to get any newly created jobs should be able to take account of the (child)care “tax” paid by those with caring responsibilities on time spent in employment (as well as the formal tax and benefit system).
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Working Paper No.964
27 July 2020
Budget Credibility of Subnational Governments
AbstractBudget credibility, or the ability of governments to accurately forecast macro-fiscal variables, is crucial for effective public finance management. Fiscal marksmanship analysis captures the extent of errors in the budgetary forecasting. The fiscal rules can determine fiscal marksmanship, as effective fiscal consolidation procedures affect the fiscal behavior of the states in conducting the budgetary forecasts. Against this backdrop, applying Theil’s technique, we analyze the fiscal forecasting errors for 28 states (except Telangana) in India for the period 2011–16. There is a heterogeneity in the magnitude of errors across subnational governments in India. The forecast errors in revenue receipts have been greater than revenue expenditure. Within revenue receipts, the errors are more significantly pronounced in the grants component. Within expenditure budgets, the errors in capital spending are found to be greater than revenue spending in all the states. Partitioning the sources of errors, we identified that the errors were more broadly random than due to systematic bias, except for a few crucial macro-fiscal variables where improving the forecasting techniques can provide better estimates.
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Working Paper No.963
16 July 2020
The Early Impact of COVID-19 on Job Losses among Black Women in the United States
AbstractThe COVID-19 pandemic seemingly appeared out of nowhere but changed nearly everything. As the pandemic unfolded, industries deemed nonessential were leveled. Many occupations in these industries are low-wage, and women constitute a greater share of America’s low-wage labor force than men. Even as some workers were able to do their jobs from their homes, a high proportion of “essential workers” were African American, other people of color, women, and an intersection of these groups—women of color. The goal of this paper is to closely examine the contours, depth, and causes of COVID-19’s impact on Black women’s employment in the United States through the lenses of both feminist economic theory and stratification economics.
The data appendix for Holder, Jones, and Masterson, "The Early Impact of COVID-19 on Job Losses Among Black Women in the United States," forthcoming in Feminist Economics is available here. This appendix includes detailed tables of major labor force indicators by race and sex; employment by race, sex, and industry and occupation; and unemployment by race and sex for early 2020.
Download Working Paper No. 963 PDF (257.07 KB)
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Working Paper No.962
14 July 2020
Some Empirical Models of Japanese Government Bond Yields Using Daily Data
AbstractThis paper models the dynamics of Japanese government bond (JGB) nominal yields using daily data. Models of government bond yields based on daily data, such as those presented in this paper, can be useful not only to investors and market analysts, but also to central bankers and other policymakers for assessing financial conditions and macroeconomic developments in real time. The paper shows that long-term JGB nominal yields can be modeled using the short-term interest rate on Treasury bills, the equity index, the exchange rate, commodity price index, and other key financial variables.
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Working Paper No.961
13 July 2020
The "Kansas City" Approach to Modern Money Theory
AbstractModern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp’s state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and nonsovereign issues of liabilities, and hence integrates a credit theory of money (or, “endogenous money theory,” as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the “Kansas City” approach to MMT at the University of Missouri–Kansas City (UMKC) and the Levy Economics Institute of Bard College.
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Policy Notes No.5
10 July 2020
Debt Management and the Fiscal Balance
AbstractIn this policy note, Jan Toporowski provides an analysis of government debt management using fiscal principles derived from the work of Michał Kalecki. Dividing the government’s budget into a “functional” and “financial” budget, Toporowski demonstrates how a financial budget balance—servicing government debt from taxes on wealth and profits that do not affect incomes and expenditures in the economy—allows a government to manage its debts without compromising the macroeconomic goals set in the functional budget. By splitting the budget into a functional budget that affects the real economy and a financial budget that just maintains debt payments and the liquidity of the financial system, the government can have two independent instruments that can be used to target, respectively, the macroeconomy and government debt—overcoming a dilemma that makes fiscal policy ineffective. This analysis also explains how pursuit of supply-side policies that result in a financial budget deficit and functional budget surplus can lead to slow growth, rising government debt, and financial instability.
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Working Paper No.960
09 July 2020
Fiscal Policy in Argentina, Brazil, and Mexico and the 2030 Agenda for Sustainable Development
AbstractFiscal policy is useful as a government instrument for supporting the economy, contributing to an increase in employment, and reducing inequality through more egalitarian income distribution. Over the past 30 years, developing countries have failed to increase their real wages due to the lack of domestic value-added in the era of globalization, where global supply chains are the driving factor for attracting foreign direct investment. Under such circumstances, the role of fiscal policy has become an important factor in creating the necessary conditions for boosting the economy. With the end of commodity-export-led growth, Mexico experienced a moderate reduction of 5 percent in poverty between 2014 and 2018 due to the structural adjustment of social policies and its economic and trade relationship with the United States; during the same period there has been no change in poverty in Argentina, and Brazil has suffered a rise in poverty. Following the global financial crisis, greater attention has been paid to fiscal policy in developed and developing countries—specifically Argentina, Brazil, and Mexico (ABM)—in order to attain macroeconomic stability. One of the consequences of the financial crisis is rising income inequality and its negative effects on economic growth. Over the past decade, fiscal policy has been adopted for the economic recovery. However, the recovery has been accompanied by a decrease in real wages of the middle class. The purpose of the present research is to critically examine the results of fiscal policy in ABM and the United Nations’ 2030 Agenda for Sustainable Development.
Download Working Paper No. 960 PDF (259.17 KB) -
Working Paper No.959
25 June 2020
Distribution and Gender Effects on the Path of Economic Growth
AbstractThis paper applies a robust empirical methodology, which considers issues relating to cross-country heterogeneity and cross-sectional dependence, to inspect the contributions of gender equality and factor income distribution to an economy’s growth path. A dynamic model of aggregate demand is estimated on a unique panel dataset from 46 countries that are further grouped into developed (DC), semi-industrialized (SIEs), and low-income agricultural economies (LIAEs).
Download Working Paper No. 959 PDF (571.87 KB)
The empirical findings suggest that, overall, growth is driven by investment in the short run and domestic demand in the long run. In the short run, the results suggest that low female wages act as a stimulus to growth in SIEs but may promote contractionary pressures on demand in the long run. For LIAEs and DCs, the effect of improved labor market conditions for women—leaving men’s constant—on demand-led growth conditions are positive in the short run but may harm long-term growth prospects.
In all, the empirical evidence, combined with the stylized facts about institutional and economic inequality, suggests that the impact of gender and income inequality on macroeconomic outcomes will differ depending on the economic structure and level of economic development. -
Public Policy Brief No.151
16 June 2020
Crisis, Austerity, and Fiscal Expenditure in Greece
AbstractThis policy brief provides a discussion of the relationships between austerity, Greece’s macroeconomic performance, debt sustainability, and the provision of healthcare and other social services over the last decade. It explains that austerity was imposed in the name of debt sustainability. However, there was a vicious cycle of recession and austerity: each round of austerity measures led to a deeper recession, which increased the debt-to-GDP ratio and therefore undermined the goal of debt sustainability, leading to another round of austerity. One of the effects of these austerity policies was the significant reduction in healthcare expenditure, which made Greece more vulnerable to the recent pandemic. Finally, it shows how recent pre-COVID debt sustainability analyses projected that Greek public debt would become unsustainable even under minor deviations from an optimistic baseline. The pandemic shock will thus lead to an explosion of public debt. This brings the need for a restructuring of the Greek public debt to the fore once again, as well as other policies that will address the eurozone’s structural imbalances.
Download Public Policy Brief No. 151, 2020 PDF (841.90 KB) -
Working Paper No.958
12 June 2020
A Stock-Flow Consistent Quarterly Model of the Italian Economy
AbstractMacroeconomists and political officers need rigorous, albeit realistic, quantitative models to forecast the future paths and dynamics of some variables of interest while being able to evaluate the effects of alternative scenarios. At the heart of all these models lies a standard macroeconomic module that, depending on the degree of sophistication and the research questions to be answered, represents how the economy works. However, the complete absence of a realistic monetary framework, along with the abstraction of banks and more generally of real–financial interactions—not only in dynamic stochastic general equilibrium (DSGE) models but also in central banks’ structural econometric models—made it impossible to detect the rising financial fragility that led to the Great Recession.
In this paper, we show how to address the missing links between the real and financial sectors within a post-Keynesian framework, presenting a quarterly stock-flow consistent (SFC) structural model of the Italian economy. We set up the accounting structure of the sectoral transactions, describing our “transaction matrix” and “balance sheet matrix,” starting from the appropriate sectoral data sources. We then “close” all sectoral financial accounts, describe portfolio choices, and define the buffer stocks for each class of assets and sector in the model. We describe our estimation strategy, present the main stochastic equations, and, finally, discuss the main channels of transmissions in our model.
Download Working Paper No. 958 PDF (1.11 MB) -
Working Paper No.957
05 June 2020
Notes on Intersectional Political Economy
AbstractThis paper presents a critique of Karl Marx’s labor theory of value and his theory of falling profit rates from an intersectional political economy perspective. Specifically, I rely on social reproduction theory to propose that Marx-biased technical change disrupts the social order and leads to competition between workers. The bargaining power of workers cannot be dissociated from class struggle within the working class. I argue that technical change increases social conflict, which can counterbalance the long-run tendency of the profit rate to fall. The conclusion is that class struggle is multilayered and endogenous to the process of accumulation.
Download Working Paper No. 957 PDF (684.41 KB) -
Public Policy Brief No.150
03 June 2020
The Impact of Technological Innovations on Money and Financial Markets
AbstractAccording to Senior Scholar Jan Kregel and Paolo Savona, attempting to maintain the status quo in the face of the introduction of some recent technological innovations—chiefly cryptocurrencies and associated instruments based on distributed ledger technology, the deployment of artificial intelligence, and the use of data science in financial markets—will create risks that increase instability and threaten national financial systems. In this policy brief, they analyze the impacts of these innovations on the present institutional environment and outline an appropriate regulatory framework. Kregel and Savona argue that a public monopoly on the issuance of cryptocurrency could promote financial stability and help repair the dissociation between finance and the real economy.
Download Public Policy Brief No. 150, 2020 PDF (339.66 KB) -
Strategic Analysis
29 May 2020
Greece’s Economy after COVID-19
AbstractGreece’s fragile economic recovery was halted by the COVID-19 pandemic: GDP, employment, exports, and investment are expected to record significantly negative trends. While some projections for GDP growth show a quick V-shaped recovery beginning in 2021, this is rather improbable given the Greek economy’s structural inefficiencies.
Download Strategic Analysis, May 2020 PDF (239.55 KB)
This strategic analysis explores the consequences of various assumptions about the fall in the different sources of aggregate demand in order to produce a baseline projection for the Greek economy. A more optimistic scenario is also analyzed, in which the European Commission’s recently announced Recovery Fund materializes, allowing the government to increase public consumption as well as investment through EU grants and loans. The authors recommend additional measures to alleviate the impact of the shock and help put Greece’s economy back on track when the epidemic has died out. -
Working Paper No.956
19 May 2020
An Empirical Analysis of Long-Term Brazilian Interest Rates
AbstractThis paper empirically models the dynamics of Brazilian government bond (BGB) yields based on monthly macroeconomic data in the context of the evolution of Brazil’s key macroeconomic variables. The results show that the current short-term interest rate has a decisive influence on BGBs’ long-term interest rates after controlling for various key macroeconomic variables, such as inflation and industrial production or economic activity. These findings support John Maynard Keynes’s claim that the central bank’s actions influence the long-term interest rate on government bonds mainly through the short-term interest rate. These findings have important policy implications for Brazil. This paper relates the findings of the estimated models to ongoing debates in fiscal and monetary policies.
Download Working Paper No. 956 PDF (753.89 KB) -
Working Paper No.955
13 May 2020
Class Size, Cognitive Abilities, Bullying, and Violent Behavior
AbstractThis study uses rich administrative and survey data to investigate the effects of class size on students’ cognitive tests as well as bullying and violent behavior. I use the maximum class size rule to create a regression discontinuity (RD) relation between cohort enrollment size and class size in the public and the United Nations Relief and Works Agency (UNRWA) school system in the West Bank. In addition, I provide evidence that there is no violation of the RD assumptions resulting from discontinuities in the relationship between enrollment and students’ household background at cutoff points induced by a maximum class size rule. The main findings suggest that class size has no direct impact on students’ cognitive skills except for those in grade six. However, class size reduction improves the quality of life for children by mitigating the bullying and violent behavior among pupils that may negatively affect their achievements. Finally, I point to peer relations and mental health problems as a potential mechanism through which class size affects children’s self-reported bullying–victim instances and violent behavior.
Download Working Paper No. 955 PDF (2.36 MB) -
Policy Notes No.4
05 May 2020
Guaranteeing Employment during the Pandemic and Beyond
AbstractThe ongoing job losses, already numbering in the tens of millions, and the mass unemployment that will remain once the COVID-19 crisis has passed are of our own making, argues Pavlina R. Tcherneva, created by our inability to conceive of policies that protect and create jobs on demand. There is another option: instead of capitulating to a world of guaranteed unemployment, we can demand policies that guarantee employment. During the pandemic, the government can protect jobs by acting as a kind of employer of last resort, while in the post-pandemic world it can create jobs directly via mass mobilization and a job guarantee. In this environment, backstopping payrolls, mass mobilization, and the job guarantee are three different but organically linked policies that aim to secure the right to decent, useful, and remunerative employment opportunities for all.
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Working Paper No.954
30 April 2020
Household Consumption, Household Indebtedness, and Inequality in Turkey
AbstractThis paper examines whether relative income and income inequality within reference groups affect household consumption. Using the explanations of consumption behavior based on Dusenberry’s relative income hypothesis, we test if household consumption levels in Turkey are affected by the household’s relative position and inequality in the reference group between 2005–12 by employing cross-sectional household-level data. We find that household consumption is negatively related to the relative income indicator after controlling for absolute income, and positively related to the income inequality of the reference group, as the literature suggests. The paper also shows that household indebtedness has a positive impact on household consumption when inequality in the reference group and the relative position of households are controlled for. We confirm that the results are not sensitive to chosen relative income indicators and income inequality.
Download Working Paper No. 954 PDF (709.61 KB)
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Working Paper No.953
24 April 2020
Notes on the Accumulation and Utilization of Capital
AbstractThe paper makes three contributions. First, following up on Nikiforos (2016), it provides an in-depth examination of the Federal Reserve measure of capacity utilization and shows that it is closer to a cyclical indicator than a measure of long run variations of normal utilization. Other measures, such as the average workweek of capital or the national emergency utilization rate are more appropriate for examining long-run changes in utilization. Second, and related to that, it argues that a relatively stationary measure of utilization is not consistent with any theory of the determination of utilization. Third, based on data on the lifetime of fixed assets it shows that for the issues around the “utilization controversy” the long run is a period after thirty years or more. This makes it a Platonic Idea for some economic problems.
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Working Paper No.952
24 April 2020
Notes on the Accumulation and Utilization of Capital
AbstractThis paper discusses some issues related to the triangle between capital accumulation, distribution, and capacity utilization. First, it explains why utilization is a crucial variable for the various theories of growth and distribution—more precisely, with regards to their ability to combine an autonomous role for demand (along Keynesian lines) and an institutionally determined distribution (along classical lines). Second, it responds to some recent criticism by Girardi and Pariboni (2019). I explain that their interpretation of the model in Nikiforos (2013) is misguided, and that the results of the model can be extended to the case of a monopolist. Third, it provides some concrete examples of why demand is a determinant for the long-run rate of utilization of capital. Finally, it argues that when it comes to the normal rate of utilization, it is the expected growth rate of demand that matters, not the level of demand.
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Public Policy Brief No.149
14 April 2020
Pandemic of Inequality
AbstractThe costs of the COVID-19 pandemic—in terms of both the health risks and economic burdens—will be borne disproportionately by the most vulnerable segments of US society. In this public policy brief, Luiza Nassif-Pires, Laura de Lima Xavier, Thomas Masterson, Michalis Nikiforos, and Fernando Rios-Avila demonstrate that the COVID-19 crisis is likely to widen already-worrisome levels of income, racial, and gender inequality in the United States. Minority and low-income populations are more likely to develop severe infections that can lead to hospitalization and death due to COVID-19; they are also more likely to experience job losses and declines in their well-being.
The authors argue that our policy response to the COVID-19 crisis must target these unequally shared burdens—and that a failure to mitigate the regressive impact of the crisis will not only be unjust, it will prolong the pandemic and undermine any ensuing economic recovery efforts. As the authors note, we are in danger of falling victim to a vicious cycle: the pandemic and economic lockdown will worsen inequality; and these inequalities exacerbate the spread of the virus, not to mention further weaken the structure of the US economy.
Download Public Policy Brief No. 149, 2020 PDF (539.32 KB) -
One Pager No.63
10 April 2020
Are We All MMTers Now? Not so Fast
AbstractAs governments around the world explore ambitious approaches to fiscal and monetary policy in their responses to the COVID-19 crisis, Modern Money Theory (MMT) has been thrust into the spotlight once again. Unfortunately, many of those invoking the theory have misrepresented its central tenets, according Yeva Nersisyan and L. Randall Wray.
MMT provides an analysis of fiscal and monetary policy applicable to national governments with sovereign, nonconvertible currencies. In the context of articulating the elements of that analysis, Nersisyan and Wray draw out one of the lessons to be learned from the pandemic and its policy responses: that the government’s ability to run deficits is not limited to times of crisis; that we must build up our supplies, infrastructure, and institutions in normal times, and not wait for the next crisis to live up to our means.
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Working Paper No.951
10 April 2020
A Simple Model of the Long-Term Interest Rate
AbstractThis paper presents a simple model of the long-term interest rate. The model represents John Maynard Keynes’s conjecture that the central bank’s actions influence the long-term interest rate primarily through the short-term interest rate, while allowing for other important factors. It relies on the geometric Brownian motion to formally model Keynes’s conjecture. Geometric Brownian motion has been widely used in modeling interest rate dynamics in quantitative finance. However, it has not been used to represent Keynes’s conjecture. Empirical studies in support of the Keynesian perspective and the stylized facts on the dynamics of the long-term interest rate on government bonds suggest that interest rate models based on Keynes’s conjecture can be advantageous.
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Policy Notes No.2
03 April 2020
Stabilizing State and Local Budgets through the Pandemic and Beyond
AbstractThe federal government appears to have abandoned the idea of a coordinated public health response to the COVID-19 pandemic, leaving the entirety to state and local governments. Meanwhile, the economic standstill resulting from necessary public health measures will soon cripple state and local budgets. Alexander Williams outlines a proposal for an intragovernmental automatic stabilizer program that would provide a backstop for state and local finances—both during the pandemic and beyond. Without this program, states will be severely constrained in their ability to respond to COVID-19, and balanced budget requirements will force them to cut jobs and raise taxes during the deepest recession in living memory.
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Policy Notes No.1
19 March 2020
When Two Minskyan Processes Meet a Large Shock
AbstractThe spread of the new coronavirus (COVID-19) is a major shock for the US and global economies. Research Scholar Michalis Nikiforos explains that we cannot fully understand the economic implications of the pandemic without reference to two Minskyan processes at play in the US economy: the growing divergence of stock market prices from output prices, and the increasing fragility in corporate balance sheets.
The pandemic did not arrive in the context of an otherwise healthy US economy—the demand and supply dimensions of the shock have aggravated an inevitable adjustment process. Using a Minskyan framework, we can understand how the current economic weakness can be perpetuated through feedback effects between flows of demand and supply and their balance sheet impacts.
Download Policy Note 2020/1 PDF (306.68 KB)