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.

Mahbuba Aktar / Makram El-Shagi

CFDS Discussion Paper 2026/5

Abstract

This paper studies how digital credit – specifically BigTech and fintech lending – relates to income inequality in 42 countries from 2013 to 2019. We develop a dynamic multi-equation panel framework based on isometric log-ratio transformations of income shares, which allows us to model shifts in the entire Lorenz curve while respecting the compositional constraints that standard approaches typically ignore. BigTech credit consistently reduces the top income share, and its inequality-reducing effect is most pronounced in developed economies, in countries with stronger institutions, and in financially open environments. Fintech credit exhibits the opposite pattern: it raises the top income share while lowering the bottom 50 percent’s share, with the magnitude of this effect similarly amplified by higher development, stronger institutional quality, and greater financial openness.

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Mahbuba Aktar / Makram El-Shagi / Florian Gerth

CFDS Discussion Paper 2026/4

Abstract

Financial frictions are a key determinant of monetary policy transmission. Using provincial Chinese data for 2011–2019, we examine this question through the lens of regional variation in traditional and digital financial inclusion. We combine high-frequency monetary policy shocks with state-dependent local projections, interpreting traditional inclusion as a proxy for liquidity constraints and digital inclusion as a proxy for search frictions. Regions with stronger liquidity constraints exhibit weaker output and price responses, in line with the predictions of New Keynesian models with heterogeneous agents. Lower search frictions instead tend to amplify transmission over medium horizons, though short-run effects are mixed

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Makram El-Shagi

CFDS Discussion Paper 2026/3

Abstract

This paper documents systematic and economically meaningful differences across the two most widely used cross-country inequality databases, SWIID and WID. Using the full set of overlapping country-year observations since 1980, we show that agreement between the databases is limited not only in levels but, more importantly, in within-country dynamics. For market-income inequality in particular, correlations decline sharply over time and are close to zero in recent decades. We further demonstrate that established empirical findings are highly sensitive to the choice of inequality data. The divergence between databases cannot be reduced to simple definitional differences such as population coverage or equivalization. Taken together, our results imply that database choice is not a second-order technical detail but a central determinant of empirical conclusions in the inequality literature.

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Makram El-Shagi / Florian Gerth /  Paul Lukuliko Philemon

CFDS Discussion Paper 2026/2

Abstract

We construct a new measure of monetary policy discretion by treating the predictable component of interest-rate changes as rule based and unexpected changes as discretionary. Using newly released high-frequency monetary policy shocks for 20 countries from 2000 to 2024, we document systematic cross-country variation in discretion. Two-way fixed-effects estimates show that greater central-bank independence is associated with higher discretion in developed economies. Event studies around irregular governor turnovers yield little evidence of politically driven discretionary shocks once transitional dynamics are accounted for.

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Makram El-Shagi /  Paul Lukuliko Philemon

CFDS Discussion Paper 2026/1

Abstract

We examine how a more hawkish policy stance – defined as an above- median long-run inflation semi-elasticity of the policy rate – affects economic growth in 37 inflation-targeting countries. To this end, we estimate time-varying, bias-corrected forward-looking Taylor rules for all inflation- targeting countries for which the data permit such estimation. Our results point to sizable growth effects, exceeding 0.5 percent annually, for countries with a more hawkish policy stance. This suggests that the growth benefits reported in the previous literature on inflation targeting are primarily driven by a small subset of countries that react more forcefully to inflation.

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Jonathan Benchimol, Lahcen Bounader, Mario Dotta

CFDS Discussion Paper 2025/1

Abstract

Bounded rationality and limited attention significantly influence expectation formation and macroeconomic dynamics, yet empirical quantification of these behavioral phenomena remains challenging. This paper provides the first cross-country estimation of both micro- and macro-level attention parameters using a structurally identified behavioral New Keynesian model. Employing Bayesian techniques on harmonized data from 22 OECD countries (1996-2019) and ensuring robust parameter identification, we document substantial heterogeneity in behavioral inattention across countries. Our cognitive discounting estimates range from 0.76 to 0.98, with higher values indicating greater attention. We establish three key empirical regularities: (1) attention parameters are positively associated with macroeconomic volatility, supporting rational inattention theory; (2) surprise movements in key macroeconomic variables and online information-seeking behavior significantly influence attention allocation; and (3) institutional quality, particularly government effectiveness, is correlated with attention levels. These findings reveal that attention is both a behavioral and a structural phenomenon, responding to institutional factors and economic conditions. Our results provide an empirical foundation for calibrating country-specific models and yield important implications for the design and transmission of monetary policy under bounded rationality, showing that policy effectiveness may systematically vary with the macroeconomic environment.

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Rong Li, Dongzhou Mei, Bing Tong

CFDS Discussion Paper 2024/6

Abstract

We introduce gradual adjustment costs for both domestic and foreign bonds in a New Keynesian small open economy model, unifying the theories of foreign exchange intervention and the liquidity effect. With gradual adjustment for foreign bonds, interest rate differentials lead to persistent capital flows. With adjustment costs for domestic bonds, open market operations generate a stronger liquidity effect, which has real effects in an environment with costly intermediation. Furthermore, under gradual portfolio adjustment, nominal interest rates change temporarily in response to asset transactions, so that the model can restore equilibrium when the steady-state asset ratios have changed.

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Makram El-Shagi, Yishuo Ma

CFDS Discussion Paper 2024/5

Abstract

While policy reaction functions of most major central banks are routinely approximated by fitting Taylor (type) rules to their policy rate, there is no such consensus for the People’s Bank of China (PBoC). What makes it hard to get a clear impression of the “true” reaction function is that most papers in the extensive literature focus on a single aspect of the reaction function typically mostly comparing it to one (or a few) widely used baseline models. Contrarily, we assess a broad range of questions regarding the reaction function in a unified approach, estimating several hundred reaction functions. While we find that no single policy measure fully captures all aspects of the PBoC’s policy, our paper provides clear evidence for asymmetric behavior, support for an important role of monetary aggregates, and robust evidence for the PBoC considering both financial stability and exchange rate stabilization in its policy deliberations.

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Makram El-Shagi, Steven Yamarik

CFDS Discussion Paper 2024/4

Abstract

This paper examines the impact of Federal Reserve policy on income inequality across US states. We use the local projections method of Jorda to estimate impulse response functions for each state. We find that a restrictive monetary policy increases income inequality in almost all states, but with different magnitudes. Subsequent panel analysis examines the possible transmission mechanisms that can account for these differences. Our empirical results confirm the theoretical predictions - inequality is increased by higher inflation, home ownership, and earnings in the finance, insurance and real estate (FIRE) sector; but decreased by higher housing prices, unionization rates, educational attainment and minimum wage.

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Makram El-Shagi

CFDS Discussion Paper 2024/2

Abstract

In this paper, we assess the impact of monetary policy shocks on the income distribution in the Eurozone after the Global Financial Crisis, i.e., a time of unconventional monetary policy. Unlike previous papers that focus on the precrisis era, where monetary policy was primarily conducted through interest rates, expansionary policy typically increases inequality. This can be mitigated by highly developed financial markets and sound institutions that limit rent seeking.

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Makram El-Shagi

CFDS Discussion Paper 2024/3

Abstract

In this paper, we reinterpret a novel approach that was designed to assess policy optimality given a known objective function. In the spirit of Uhlig's "quantitative interpretation", we reverse engineer the results to allow the estimation of the objective function, assuming that the policymaker aims for optimality. We show, that the Fed - despite its dual mandate - places far greater weight on business cycle stabilization than on combating inflation.

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Makram El-Shagi, Kiril Tochkov

CFDS Discussion Paper 2024/1

Abstract

Unitary monetary policy in large emerging economies with substantial regional disparities is likely to have heterogeneous effects with unintended consequences. This paper explores the regional effects of monetary policy in China by estimating the response of a series of provincial variables to a national monetary policy shock using quarterly data over the period 1999-2022. Regional heterogeneity is assessed by comparing the results from a fixed-effects and a mean-group estimator. The response of consumer prices and loans is found to be homogeneous across provinces, while that of output and property prices exhibits significant regional variation. Further analysis of the differential response for two provincial clusters indicates that output in Western China experiences faster drops after a contractionary monetary policy shock and takes longer to recover than in Eastern and Central China. In the same context, property prices react with a delay and endure a more gradual recovery after the shock. The advancement of market institutions, the share of state-owned enterprises, and the size of the private sector are identified as potential determinants of the differential response across the two regional clusters.

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Makram El-Shagi, Steven Yamarik

CFDS Discussion Paper 2023/4

Abstract

This paper applies a penalized synthetic control method to estimate the growth effects of European Union (EU) enlargement. A penalized synthetic control estimator introduces a penalty term in the synthetic matching algorithm that penalizes discrepancies between the treated economy and its synthetic counterpart. We use this estimator to construct counterfactuals of the growth rate of GDP per capita for the EU accession countries. Standard synthetic control results show that a country’s accession into the EU generates an almost uniform positive impact on the level of real GDP per capita. However, by applying the penalized synthetic control estimator to the growth rate, we find that most of these positive effects become insignificant and some even become negative.

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Makram El-Shagi, Kiril Tochkov

CFDS Discussion Paper 2023/3

Abstract

This paper explores the presence of regional heterogeneity in the response of inflation to changes in the output gap in China. We estimate the slope of the provincial Phillips curve for five different price indices using quarterly data over the period 2000-2022. The presence of regional heterogeneity is tested by comparing a fixed effects and a mean group specification. Our results indicate that the slope of the provincial Phillips curve in China is positive and significant for property prices and the producer price index (PPI), which is explained by their focus on non-tradables and goods specific to the local economy, respectively. Other price indices centered on tradables do not show significant sensitivity to provincial output shocks. Regional heterogeneity in the provincial slope is confirmed only in the case of the PPI with around 60% of provinces, including most coastal provinces, exhibiting a positive coefficient. Our findings point to the share of industry and the market power of industrial enterprises as significant contributors to the sensitivity of inflation to provincial demand shocks. Moreover, we show that a stronger market-orientation and a smaller role of the state in a given province are also positively associated with the slope of the Phillips curve.

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Qiaoyu Liang, Yihao Xue, Bing Tong

CFDS Discussion Paper 2023/2

Abstract

Are technology shocks contractionary or expansionary when interest rates are inflexible? This paper studies this issue based on Chinese data during the interest rate reform. We decompose the technology shock into permanent and transitory components and investigate their macroeconomic effects based on the New Keynesian model and the local projection method. Our empirical results show that interest rate fixation amplifies the effects of permanent technology shocks: a positive shock generates higher output and inflation during the period of fixed interest rates. This result is consistent with the New Keynesian model’s prediction for permanent technology shocks. However, the empirical results for transitory technology shocks are insignificant.

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Makram El-Shagi, Lunan Jiang

CFDS Discussion Paper 2023/1

Abstract

In this paper, we assess the impact of the Medium-term Lending Facility (MLF), an instrument recently introduced by the People's Bank of China (PBoC), on treasury and corporate bond yields. This instrument and, more specifically, the transmission of its use through treasury bond yields to corporate bond yields plays a major role in the more market-based policy the PBoC envisions for the future. Using a semi-parametric local projection framework, we show that the mechanism is already fairly effective, allowing the PBoC to manipulate the entire yield curve.

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Makram El-Shagi, Lin Zhang

CFDS Discussion Paper 2022/2

Abstract

In this paper, we demonstrate the importance of state-owned enterprises (SOEs) for the conduct of fiscal policy in China using both a structural VAR based on macroeconomic data and a panel model utilizing firm-level data. We show that SOEs respond fundamentally differently to fiscal policy shocks than non-SOEs. Our results strongly indicate that SOEs are not merely competition to non-SOEs but rather that their resources are leveraged as part of fiscal policy to support and stabilize the private economy.   

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Yihao Xue, Qiaoyu Liang, Bing Tong

CFDS Discussion Paper 2022/1

Abstract

Based on a New Keynesian model with a transient interest rate peg and energy inputs in production, we examine the impact of China’s interest rate liberalization on the transmission of energy supply shocks. Theoretical analysis shows that in the face of negative supply shocks, output decreases less or even increases while inflation rises more under a fixed interest rate compared with a flexible interest rate. We construct the Divisia energy index based on Chinese data to test the model predictions. We identify energy supply shocks following the strategy of Kilian (2009) and obtain impulse responses using the local projection method proposed by Jord`a (2005). The empirical results are consistent with our model predictions.

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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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  1. DP 2021/2 - El-Shagi, M. / Ma, Y.: Nine Blind Men and the PBoC
  2. DP 2021/1 - El-Shagi, M. / Tochkov, K.: Divisia Monetary Aggregates for Russia: Money Demand, GDP Nowcasting, and the Price Puzzle
  3. DP 2020/8 - Benchimol, J. / Ivashchenko, S.: Switching Volatility in a Nonlinear Open Economy
  4. DP 2020/7 - El-Shagi, M. / Tochkov, K.: Shadow of the Colossus: Euro Area Spillovers and Monetary Policy in Central and Eastern Europe

Subcategories

Call for Papers

2026 CFDS Discussion Papers

2025 CFDS Discussion Papers

2024 CFDS Discussion Papers

2023 CFDS Discussion Papers

2022 CFDS Discussion Papers

2021 CFDS Discussion Papers

2020 CFDS Discussion Papers

2019 CFDS Discussion Papers

2018 CFDS Discussion Papers

2017 CFDS Discussion Papers

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