CFDS Discussion Paper Series

CFDS is publishing the CFDS Discussion Paper Series focused on studies on financial economics, finance, macroeconomics, and international economics to give all researchers related to our center and Henan University, as well as members of our cooperation partners a chance to publish their ideas and reach a broader academic audience. CFDS Dicsussion Papers are indexed on RePEc.

 

 

CFDS is publishing the CFDS Discussion Paper Series focused on studies on financial economics, finance, macroeconomics, and international economics to give all researchers related to our center and Henan University, as well as members of our cooperation partners a chance to publish their ideas and reach a broader academic audience. CFDS Dicsussion Papers are indexed on RePEc.

Papers are accepted and published in English only.

 

How to participate?

  1. Submit your paper

    There is no deadline for submission and we are reviewing papers on an ongoing basis. To submit please:
    1. Send an email to Kerstin El-Shagi (This email address is being protected from spambots. You need JavaScript enabled to view it.); subject line: CFDS Discussion Papers "The title of your paper"
    2. Include your full name; email; mobile number; institutional affiliation
    3. Attach your paper

    Language Editing: If you require to edit your paper before submitting it, we can recommend using American Journal Experts. If you are looking for a cheaper alternative, individuals on fiverr offer English language editing too.

  2. Peer review: Papers are peer-reviewed and chosen on a rolling basis upon submission. You will be asked to respond to the reviewer´s comments.

  3. Publication: Each Discussion Paper is published and disseminated widely through CFDS's website as well as indexed on RePEc. We are aware that the papers represent preliminary work and are circulated to encourage discussion with you as author. We publish digitally only.

Makram El-Shagi

CFDS Discussion Paper 2021/3

Abstract

In this paper we assess the impact of election uncertainty on financial markets using the almost unique natural experiment provided by the 2020 US presidential election. Overshadowed by the COVID-19 crisis and the corresponding changes in election law and behavior – especially with respect to mail-in voting – the counting process generated huge swings in the expected election outcome. All those were purely driven by counting, i.e. after the voting process was finished, giving us the rare opportunity to observe truly exogenous swings in election risk. We show that election risk has a negative impact on economic expectations and that expectations in favor of Trump did not correlate with the positive economic implications that the literature has demonstrated for previous Republican candidates.

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Makram El-Shagi, Yishuo Ma

CFDS Discussion Paper 2021/2

Abstract

Over the past decade, several dozen papers have been written that identify the People’s Bank of China’s monetary policy shocks. Yet, what often seems like minor differences in measurements of monetary policy and identifying assumptions yield vastly different implied shocks. In this paper, we pitch 20 shock time series from the literature against each other in a horse race. We use a local projections framework to produce impulse responses based on all shocks for production, prices, money and interest rates and use them to assess the economic plausibility of the competing results. Our results confirm the frequently mentioned relevance of monetary aggregates for Chinese monetary policy but also point the importance of using forward looking policy reaction functions (or account for forward looking variables in a VAR framework) when identifying monetary policy shocks.

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Makram El-Shagi, Kiril Tochkov

CFDS Discussion Paper 2021/1

Abstract

The lack of developed financial markets and well-functioning transmission channels assigns monetary aggregates in emerging economies the potential role of nominal anchor, intermediate target, or informational variable for monetary policy. The effectiveness of this approach relies crucially on the correct measurement of money, which is not fulfilled by the conventional index based on the simple sum of financial assets. This paper calculates alternative Divisia monetary aggregates for Russia over the period 1998-2019, which account for the level of liquidity of a given monetary asset by assigning weights according to the usefulness of that asset for transaction services. Divisia is found to follow a growth pattern markedly different from the simple sum, whereby deviations between the two series are even more pronounced when foreign-currency accounts are included. We conduct three empirical exercises to demonstrate the advantages of Divisia over the simple sum. Divisia confirms the stability of the money demand function and reflects portfolio shifts in response to changes in the opportunity cost of simple sum. Lastly, Divisia mitigates the price puzzle phenomenon relative to the conventional measure. We conclude that Divisia monetary aggregates would improve the effectiveness of monetary policy in Russia. 

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Jonathan Benchimol, Sergey Ivashchenko

CFDS Discussion Paper 2020/8

Abstract

Uncertainty about an economy's regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how US shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short- and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy, should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers.

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Makram El-Shagi, Kiril Tochkov

CFDS Discussion Paper 2020/7

Abstract

Closer integration between Central and Eastern Europe (CEE) and the EUCloser integration between Central and Eastern Europe (CEE) and the EU has opened up channels facilitating the propagation of economic shocks from the core to the eastern periphery. This paper examines the effects of such shocks to economic activity and monetary conditions originating in the Euro area (EA) on output, prices, money, and interest rates in 10 CEE countries over the period 2005-2018 using a bilateral restricted VAR framework. In contrast to previous studies, we use Divisia monetary aggregates and compare the effects of EA spillovers to domestic shocks. The results indicate that EA shocks explain the majority of variation across all macroeconomic indicators, with money supply shocks playing the most prominent role. Despite some heterogeneity, the impulse response of monetary aggregates to domestic andEA monetary shocks is almost identical across countries. The impact of the EA shock increases over time and persists, while the domestic shock dies out relatively quickly. Accordingly, we find no meaningful monetary independence in the majority of CEE countries. This is likely to prove detrimental to the effectiveness of monetary policies in CEE.

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Jonathan Benchimol, Makram El-Shagi, Yossi Saadon

CFDS Discussion Paper 2020/6

Abstract

Each person's characteristics may influence that person's behaviors and their outcomes. We build and use a new database to estimate experts' performance and boldness based on their experience and characteristics. We classify experts providing inflation forecasts based on their education, experience, gender, and environment. We provide alternative interpretations of factors affecting experts' inflation forecasting performance, boldness, and pessimism by linking behavioral economics, the economics of education, and forecasting literature. An expert with previous experience at a central bank appears to have a lower propensity for predicting deflation.

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Makram El-Shagi, Lunan Jiang, Lin Zhang

CFDS Discussion Paper 2020/5

Abstract

In recent years, one of the PBoC′s major issues was to avoid a generally conservative monetary policy that would jeopardize the central government′s poverty-alleviation strategy by limiting credit supply in rural areas where it is already scarce. We develop a range of new indicators to measure those aspects of the PBoC′s policy and demonstrate that the PBoC has successfully implemented policies targeted at poor counties. That is, we show that a central bank has the general potential to address regional diversity and distributional issues.

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Bing Tong / Guang Yang

CFDS Discussion Paper 2020/3

Abstract

This paper proves in a New Keynesian model that interest rate pegging can explain the unusual business cycle fluctuations in China. It is traditional wisdom that when the nominal interest rate is inflexible, there is no unique equilibrium in macroeconomic models. We prove that a unique equilibrium exists if the nominal rate is pegged for a limited period, after which it switches to a flexible rate regime. The peg alters the propagation of external shocks, magnifies volatility of endogenous variables, and leads to instability of the economy. Besides, the model becomes more unstable when the peg duration extends, and when the pegged rate deviates from steady state. At the same time, fiscal multiplier increases under the peg, indicating fiscal policy may be more effective in mitigating economic fluctuations when monetary policy is restricted by interest rate pegging.

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Makram El-Shagi / Yizhuang Zheng

CFDS Discussion Paper 2020/4

Abstract

In this paper, we provide conclusive evidence on the role of measurement and estimation techniques in money demand estimation. Over the past few decades, there have been 100s of papers assessing money demand in the main economies of the globe. We develop a pseudo-metastudy framework where, based on modeling choices found in the literature, we estimate thousands of different specifications for the US, China, the UK and the Euro area, allowing us to assess what has driven the diverging results in the previous literature.

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Bing Tong

CFDS Discussion Paper 2020/2

Abstract

Capacity reduction has been a recurrent theme in China’s economic policy. This paper proves in a New Keynesian model that the effects of the decapacity policy depend on its persistence and monetary policy regime (interest rate flexibility). Under an interest rate peg, a temporary policy is ineffective and even expansionary, whereas a permanent policy is effective due to a negative wealth effect. When the nominal interest rate is pegged, the real rate moves oppositely with inflation, which adds positive feedback to the economy. Thus the de-capacity policy has greater uncertainty under the interest rate peg. As a policy tool, it may easily deviate from its target and bring about excessive volatility. Last, long-run price stability and a gradually advanced de-capacity policy are helpful to the achievement of policy targets.

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Bing Tong / Guang Yang

CFDS Discussion Paper 2020/1

Abstract

Nominal interest rates in China has long been controlled by the government, making their changes lagging behind price changes. We model this in a New Keynesian model with a transiently fixed interest rate, and prove that interest rate fixation can magnify model volatility and lead to economic instability. Under the fixed interest rate, the model enters a vicious spiral until monetary policy switches to a flexible interest rate rule, which represents the shadow rate of the economy, determined by discrete (and insufficient) interest rate adjustments and other policy tools. This explains Chinas large business cycle fluctuations over the past decades.

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Chen, Yinghui / Jiang, Lunan

CFDS Discussion Paper 2019/9

Abstract

This paper investigates the contribution of liquidity risk to Chinese corporate bond spreads. We calculate corporate bond spreads based on the full treasury yield curve and establish a set of liquidity measures of the Chinese corporate bonds. Our empirical study shows that liquidity premium accounts for a relatively smaller portion of corporate bond spread in China, although the market liquidity is low and corporate bond issuers are strictly pre-screened. These findings are interesting, as the developed markets have better liquidity and less pre-issuance restriction, and liquidity premium still explains a relatively larger portion of corporate bond spread. Besides, we also explore the determinants of Chinese corporate bond liquidity and default premiums.

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Jan Klingelhöfer

CFDS Discussion Paper 2019/8

Abstract

I present a model of repeated electoral competition between two parties. Parts of the electorate vote retrospectively and consider the amount of rent-seeking by the incumbent party, while the prospective voters follow probabilistic party preferences when casting their votes. I show that it is possible to distinguish the effects of incumbency advantage and electoral punishment on the minimum level of rent-seeking that is consistent with equilibrium. As long as there is electoral punishment for excessive rent-seeking, a larger incumbency advantage increases accountability by decreasing the minimum amount of rent-seeking consistent with equilibrium. The reason is that the larger the incumbency advantage is, the more important is the result of the next election for all future election outcomes. Consequently, the incumbent party is willing to give up more rent-seeking opportunities to improve its electoral prospects.

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Jonathan Benchimol, Irfan Qureshi

CFDS Discussion Paper 2019/7

Abstract

This paper presents an analysis of the stimulants and consequences of money demand dynamics. By assuming that household’s money holdings and consumption preferences are not separable, we demonstrate that the interest-elasticity of demand for money is a function of the household’s preference to hold real balances, the extent to which these preferences are not separable in consumption and real balances, and trend infl‡ation. An empirical study of U.S. data revealed that there was a gradual fall in the interest elasticity of money demand of approximately one-third during the 1970s due to high trend in‡flation. A further decline in the interest-elasticity of the demand for money was observed in the 1980s due to the changing household preferences that emerged in response to …financial innovation. These developments led to a reduction in the welfare cost of infl‡ation that subsequently explains the rise in monetary neutrality observed in the data.

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Makram El-Shagi, Jarko Fidrmuc, Steven Yamarik

CFDS Discussion Paper 2019/6

Abstract

We test the Rajan hypothesis using data for 75 highly heterogeneous Russian regions between the Russian crisis and the introduction of international sanctions (2000-2012). Applying static as well as dynamic panel data models, we show that a rise in income inequality measured by regional Gini indices is significantly correlated with the growth of personal loans. Thus, the rising inequality in Russia is likely to have implications on financial staiblity and occurrence of banking crises. Moreover, the correlation of inequality and corporate loans indicates that inequality affects loans growth across more channels than those implied by the Rajan hypothesis.

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Makram El-Shagi, Gregor von Schweinitz

CFDS Discussion Paper 2019/5

Abstract

In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growh, conditional on the fragility of government finances. Based on the database of fiscal plans in OECD countries, we show that spending shocks are less detrimental than tax-based consolidation. In times of fiscal fragility, our results indicate strongly that governments should consolidate through surprise policy changes rather than announcements of consolidation at a later horizon.

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Makram El-Shagi, Lunan Jiang

CFDS Discussion Paper 2019/4

Abstract

The current state-of-the-art estimation of yield curves relies on the dynamic state space version of the Nelson and Siegel (1987) model proposed in the seminal paper by Diebold et al. (2006). However, things become difficult when applying their approach to emerging economies with less frequently bond issuance and more sparse maturity available. Therefore, the traditional state space representation, which requires dense and fixed grids of maturities, may not be possible. One remedy is to use the traditional Nelson and Siegel (1987) OLS estimation instead, though it sacrifices efficiency by ignoring the time dimension. We propose a simple  augmentation of the Diebold et al. (2006) framework, which is more efficient than OLS estimation as it allows exploiting information from all available bonds and the time dependency of yields. We demonstrate the efficiency gains generated by our method in five case studies for major emerging economies including four of the BRICS.

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Makram El-Shagi / W. Charles Sawyer / Kiril Tochkov

CFDS Discussion Paper 2019/3

Abstract

Import demand has been a major research topic in international economics for the past 80 years because of its importance for analyzing trade and evaluating trade policies. The goal of this paper is to survey the literature and conduct a meta-analysis of empirical studies on import demand with the intention of clarifying the effect of economic development on income elasticity. In particular, we test the hypothesis that higher income levels are associated with a more elastic import demand. We apply a combination of parametric and non-parametric methods on estimates from a sample of 152 papers published over the period 1975-2014 and find that this relationship is significant and robust. Specifically, kernel densities of income elasticity estimates for high-income countries in North America and Europe are shown to exceed those for poorer parts of the world. The results from quartile regressions confirm this pattern and establish its robustness when controlling for the effect of model specifications.

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Simone Marsiglio, Nahid Masoudi

CFDS Discussion Paper 2019/1

Abstract

We analyze a transboundary pollution control problem in a heterogeneous two-country differential game in which each country’s regulator cares for the implications of environmental policy on its compet-
itiveness. We characterize and compare the noncooperative and the cooperative solutions, showing that under both scenarios, the heterogeneous countries impose different tax rates despite such competitiveness
concerns. This may suggest that, while implementing some kind of mitigation policy is necessary to combat climate change, a universally homogeneous environmental tax may not be either desirable or optimal.

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More Articles ...

  1. DP 2019/2 - El-Shagi, M. / Muhammad, B.: Institutional Similarity and Bilateral FDI
  2. DP 2018/6 - El-Shagi, M. / Yamarik, S.: IMF Conditionality and Capital Controls: Capital Account Liberalization to Capital Inflow Management?
  3. DP 2018/5 - Sun, R.: Monetary Policy Announcements and Market Interest Rates’ Response: Evidence from China
  4. DP 2018/4 - Sun, R.: Requiem for the Interest-Rate Controls in China

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2023 CFDS Discussion Papers

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CFDS Discussion Paper Series