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Working Paper
Voluntary and Mandatory Social Distancing: Evidence on COVID-19 Exposure Rates from Chinese Provinces and Selected Countries
This paper considers a modification of the standard Susceptible-Infected-Recovered (SIR) model of epidemics that allows for different degrees of compulsory as well as voluntary social distancing. It is shown that the fraction of the population that self-isolates varies with the perceived probability of contracting the disease. Implications of social distancing both on the epidemic and recession curves are investigated and their trade off is simulated under a number of different social distancing and economic participation scenarios. We show that mandating social distancing is very effective ...
Working Paper
Capital controls or exchange rate policy? a pecuniary externality perspective
In the aftermath of the global nancial crisis, a new policy paradigm has emerged> in which old-fashioned policies such as capital controls and other government distor-> tions have become part of the standard policy toolkit (the so-called macro-prudential> policies). On the wave of this seemingly unanimous policy consensus, a new strand> of theoretical literature contends that capital controls are welfare enhancing and can> be justi ed rigorously because of second-best considerations. Within the same the-> oretical framework adopted in this fast-growing literature, we show that a credible> ...
Discussion Paper
Should Emerging Economies Embrace Quantitative Easing during the Pandemic?
Emerging economies are fighting COVID-19 and the economic sudden stop imposed by lockdown policies. Even before COVID-19 took root in emerging economies, however, investors had already started to flee these markets–to a much greater extent than they had at the onset of the 2008 global financial crisis (IMF, 2020; World Bank, 2020). Such sudden stops in capital flows can cause significant drops in economic activity, with recoveries that can take several years to complete (Benigno et al., 2020). Unfortunately, austerity and currency depreciations as enacted during the global financial crisis ...
Working Paper
A Counterfactual Economic Analysis of COVID-19 Using a Threshold Augmented Multi-Country Model
This paper develops a threshold-augmented dynamic multi-country model (TG-VAR) to quantify the macroeconomic effects of COVID-19. We show that there exist threshold effects in the relationship between output growth and excess global volatility at individual country levels in a significant majority of advanced economies and in the case of several emerging markets. We then estimate a more general multi-country model augmented with these threshold effects as well as long-term interest rates, oil prices, exchange rates and equity returns to perform counterfactual analyses. We distinguish common ...
Report
Optimal Policy for Macro-Financial Stability
There is a new and now large literature analyzing government policies for financial stability based on models with endogenous borrowing constraints. These normative analyses build upon the concept of constrained efficient allocation, where the social planner is constrained by the same borrowing limit that agents face. In this paper, we show that the same set of policy tools that implement the constrained efficient allocation can be used by a Ramsey planner to replicate the unconstrained allocation, thus achieving higher welfare. The constrained social planner approach may lead to inaccurate ...
Conference Paper
The domestic and global impact of Japan’s policies for growth
This paper illustrates the possible impact of fiscal adjustment and productivity-enhancing structural reforms on the Japanese and world economies. More specifically, using a five-bloc version of the IMF's Global Economy Model (GEM) featuring Japan, emerging Asia, the United States, the euro area and the rest of the world, the paper addresses the following two questions: What is the likely adjustment of key macroeconomic variables as Japan moves toward external equilibrium under alternative fiscal consolidation and total factor productivity growth scenarios? Do alternative policy scenarios in ...
Working Paper
The valuation channel of external adjustment
International financial integration has greatly increased the scope for changes in a country's net foreign asset position through the "valuation channel" of external adjustment, namely capital gains and losses on the country's external assets and liabilities. We examine this valuation channel theoretically in a dynamic equilibrium portfolio model with international trade in equity that encompasses complete and incomplete asset market scenarios. By separating asset prices and quantities in the definition of net foreign assets, we can characterize the first-order dynamics of both valuation ...
Working Paper
Social Distancing, Vaccination and Evolution of COVID-19 Transmission Rates in Europe
This paper provides estimates of COVID-19 effective reproduction numbers and explains their evolution for selected European countries since the start of the pandemic taking account of changes in voluntary and government-mandated social distancing, incentives to comply, vaccination and the emergence of new variants. Evidence based on panel data modeling indicates that the diversity of outcomes that we document may have resulted from the non-linear interaction of mandated and voluntary social distancing and the economic incentives that governments provided to support isolation. The importance ...
Report
Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach
We estimate a workhorse dynamic stochastic general equilibrium (DSGE) model with an occasionally binding borrowing constraint. First, we propose a new specification of the occasionally binding constraint, where the transition between the unconstrained and constrained states is a stochastic function of the leverage level and the constraint multiplier. This specification maps into an endogenous regime-switching model. Second, we develop a general perturbation method for the solution of such a model. Third, we estimate the model with Bayesian methods to fit Mexico’s business cycle and ...
Working Paper
COVID-19 Time-Varying Reproduction Numbers Worldwide: An Empirical Analysis of Mandatory and Voluntary Social Distancing
This paper estimates time-varying COVID-19 reproduction numbers worldwide solely based on the number of reported infected cases, allowing for under-reporting. Estimation is based on a moment condition that can be derived from an agent-based stochastic network model of COVID-19 transmission. The outcomes in terms of the reproduction number and the trajectory of per-capita cases through the end of 2020 are very diverse. The reproduction number depends on the transmission rate and the proportion of susceptible population, or the herd immunity effect. Changes in the transmission rate depend on ...