Second presentation by @MarkLJWright on deception and self deception in sovereign debt statistics. Nice example of Italy debt reduction in 2002 by almost 2% of GDP, swapping low-face high-coupon with high-face/low-coupon debt @upanizza
Alberto Martin @ecb presenting on unions and fiscal policy. In a world with financial frictions the interest rate isn’t a good measure to decide how much to spend and this leads to an overspending externality in the union. The capacity to place debt abroad weakens the externality
New evidence by @skalemliozcan on currency appreciations and rising firm leverage in emerging markets. Key message on the importance to monitor firms’ (and not only banks’) FX exposure
End of day 1 #ARCPolak with the Mundell Fleming lecture on credit cycles and the role for monetary policy and macroprudential regulation @IMFNews
Main message: as it is hard to believe that we are in a world where financial regulation cannot solve all problems alone, there is an active and important role for monetary policy. Key question (on which more research is needed) is on the magnitude of the effects of MP
Giancarlo Corsetti kicking off the second day of the #ARCPolak conference @IMFNews with a paper on official lending terms in the euro area and debt sustainability
Second paper of the day: Jing Zhou and @PaoloMauroEcon explore the evolution of r-g in 55 countries, arguing that even if negative r-g prevail, we cannot necessarily sleep more soundly
A key point is that while the effective rate does not increase in the run up of a sovereign default, marginal rates do increase, but this happens only a few months before the default
In his discussion, @ilzetzki makes the point that the fiscal space bought by negative r-g has recently been eroded and deficits have increased. He also stresses that r, g & debt are endogenous and can generate multiple equilibria, consistent with sharp increase in marginal rates
In the paper, we show that this "reverse Robin Hood" mechanism is, at best, an incomplete explanation of the redistribution of rewards across consumers. We argue, instead, that reward cards constitute a redistribution from naive to sophisticated consumers
Thrilled to have our paper on the expansionary effects of negative rates on bank lending accepted @J_Fin_Economics. A short🧵on the main results (some are new from previous drafts), joint with Margherita Bottero, @CMinoiu, @persistdebt, Andrea Polo & @enrico_sette
We document that negative interest rate policy (NIRP) has expansionary effects on credit supply and the real economy through a portfolio rebalancing channel, similar to QE, and different from conventional policy rate cuts just above the ZLB
The announcement of NIRP shifted down and flattened the entire yield curve. The reduction in yields across all maturities incentivizes banks to rebalance their portfolio away from low or negative yielding assets to higher-yielding assets, such as corporate loans. Our results:
Una piccola storia di razzismo. Ultimo giorno di elementari, molti bambini si trovano al parco, genitori al seguito. Dopo un anno noto che mia figlia, che è entrata nella classe solo quest’anno ha stretto amicizia con solo due bambine, entrambe straniere e figlie di immigrati 1/n
Sarà un caso, ma forse è un segnale che quelle due bambine non erano integrate e quindi hanno trovato un’amicizia naturale in un’altra bambina ‘nuova’. Mi piace anche pensare che mia figlia, cresciuta in un ambiente multiculturale, non si accorga del colore della pelle 2/n
Ieri queste dinamiche erano chiarissime. Poi un genitore si chiede se Emma (nome di fantasia) ha davvero 10 anni. Infatti è molto più alta della amiche e, soprattutto, ha genitori Africani. Insomma, la storia di Weah che aveva 40 anni 3/n
An update to the work with @davidmihalyi & @valentin_lang on the effect of the #DSSI on sovereign bond spreads in poor countries. In a nutshell, spreads declined, consistent with the liquidity provision from the suspension of debt service #ResolvingSovereignDebt
A thread 1/8
The Debt Service Suspension Initiative (DSSI) provides debt relief to poor countries by deferring debt service due in 2020 without affecting the NPV of public debt. Liquidity provision under the DSSI accounts for about 20% of the fiscal shortfall due to the Covid-19 shock. 2/8
The DSSI is good for both creditors & debtors, but not all countries have joined. Why? A key motivation behind the reluctance to join are reputational concerns: participation may signal debt sustainability problems and trigger an increase in sovereign bond spreads 3/8
The discussion on fiscal policy and r-g is even more important in times of unprecedented low growth and heightened uncertainty. In this thread, I summarize some findings on the role of public debt in amplifying the response of r-g to domestic and global shocks. 1/7
The main result is that high and increasing public debts, especially when denominated in foreign currency, can lead to adverse r-g dynamics in response to negative shocks 2/7
The idea is that liquidity shocks could lead to insolvencies in response to negative shocks, even with low-rates. This is especially true for high-debt countries, as the adverse effects of debt on growth and borrowing costs can lead to self-fulfilling bad equilibria 3/7
Just out @IMFNews a short note tracking the economic impact of #COVID19 and mitigation policies in Europe and the United States.
Below a short summary of the key findings: imf.org/~/media/Files/…
First, the sharp decline in electricity usage and the unique spike in unemployment insurance claims (~33 million as of today) highlight that the Great Lockdown is novel not only for its magnitude, but also for the speed at which the economy and the labor market are affected
Second, although #COVID19 is a truly global shock, regions and countries where the outbreak is more sizable experience significantly more severe economic losses (in terms of employment, hours worked and electricity usage)