Sovereign GDP-Linked Bonds: Rationale & Design

.@voxeu @cepr_org: 'Sovereign GDP-Linked Bonds: Rationale & Design' (@RobertJShiller #Yale, Maurice Obstfeld #IMF, James Benford @BoE_Research Ed.) 'Despite the recent improvement in global growth, concerns linger of a #SecularStagnation in medium-term...https://t.co/LXsZMhCLTH

— Satyen Baindur (@Satyen_Baindur) March 29, 2018

...prospects and of limited policy space to deal with the next economic downturn...#AE debt exceeds annual output and is at its highest since WWII; #EM debt is rising rapidly...#GDP-linked bonds can increase the #DebtLimit @ which #SovereignDefault occurs, 4 both #AEs & #EMs... pic.twitter.com/3g51DU3n6k

— Satyen Baindur (@Satyen_Baindur) March 29, 2018

...for #AEs, the #DebtLimit increases till all debt is #GDP-linked, but 4 #EMs, the marginal effect on #DebtLimt begins to decline after ~60% debt is #GDP-linked...some caveats apply: #MoralHazard #RiskAppetite etc & the analysis may need 2 b modified 4 cntrys in a #CurrencyUnion

— Satyen Baindur (@Satyen_Baindur) March 29, 2018

A New Paradigm for the Business Cycle - II

Apropos #IMF Working Paper 17/250, which argues 4 a #NewParadigm for the #BusinessCycle, where crises can permanently reduce output (both level and growth rate), here's US #RGDP growth rates 4 each #NBER !#BusinessCycle since 1948 [from the 2018 Economic Report of the President] pic.twitter.com/CdGGQ7npv5

— Satyen Baindur (@Satyen_Baindur) March 23, 2018

US Goods and Services Trade Balance by Country (major trading partners) - the US has a Services trade *Surplus* with all, including #China, with the largest being with the #EU), but the goods trade deficit with #China dwarfs everything else.... pic.twitter.com/xELYV8eoXX

— Satyen Baindur (@Satyen_Baindur) March 23, 2018

New study shows that all types of recessions, including those arising from external shocks, lead to permanent losses in output and welfare. https://t.co/dYdl03J1DS #IMFBlog pic.twitter.com/lNydqYLU1u

— IMF (@IMFNews) March 24, 2018

A New Paradigm for the Business Cycle?

#IMF Working Paper 17/250 argues 4 a #NewParadigm of the '#BusinessCycle'- the #OutputGap can be 'ill-conceived, poorly-measured & inconsistent over time' - output losses can in fact be permanent, depressing both trend and level, w only partial recovery.....via @sdonnan pic.twitter.com/K516WSZQyq

— Satyen Baindur (@Satyen_Baindur) March 21, 2018

The #ParadigmShift upsets #ConventionalWisdom: Since financial crises cause #GrowthRecessions, strong #FinancialRegulation can b pro-#Growth; & #Fiscal #conservatism b4, during & after crises (even if not #austerity) is advisable, 2 decrease chance of high future sovereign debt..

— Satyen Baindur (@Satyen_Baindur) March 22, 2018

And 4 #Monetary policy, the new paradigm argues in favor of making #FinancialStability an explicit part of the mandate, to the extent of #LeaningAgainstTheWind, and even accepting higher inflation & output volatility as a means of decreasing the risk of future #FinancialCrisis...

— Satyen Baindur (@Satyen_Baindur) March 22, 2018

Apropos #IMF Working Paper 17/250, which argues 4 a #NewParadigm for the #BusinessCycle, where crises can permanently reduce output (both level and growth rate), here's US #RGDP growth rates 4 each #NBER !#BusinessCycle since 1948 [from the 2018 Economic Report of the President] pic.twitter.com/CdGGQ7npv5

— Satyen Baindur (@Satyen_Baindur) March 23, 2018

How do Greenhouse Gas Emissions Scale with Real GDP Growth?

How do #GreenhouseGas #Emissions respond 2 ∆s in #RGDP? #IMF Working Paper 1856 looks @ #TopTwenty emitting countries, separates #Trend & #Cyclical components w a #HodrickPrescottFilter; finds *on average*, GHG emissions go up by 0.4X ∆RGDP (i.e. #TrendElasticity = 0.4) pic.twitter.com/YpeM0rUx5N

— Satyen Baindur (@Satyen_Baindur) March 15, 2018

Among #AEs in #Top20, avg #TrendElasticity =0; & 4 some AEs, GHGs *decrease* as RGDP↑ eg #UK #DE, esp recent years. In USA post-2005, GHGs _decrease_ w RGDP, #China GHGs ↑ slower than RGDP (though faster in post-2000 period), #India GHGs grow ~ as its RGDP via @LounganiPrakash

— Satyen Baindur (@Satyen_Baindur) March 15, 2018

Just to clarify - the #GHG/#RGDP #TrendElasticity for #China is < 1 both pre- and post-2000, but just a bit higher post-2000 (the dashed GHG curve bends toward the #RGDP line at year ~2000 in the picture above...)

— Satyen Baindur (@Satyen_Baindur) March 15, 2018

Should Monetary Policy Worry About the Neutral Interest Rate (R*)?

In his contribution 'Should Policy Makers Worry about R*?’ [published just as the #FederalFundsRate crosses the R*ubicon @tracyalloway] @Lee_Ohanian argues that the level of R* is actually not that important, ∵ 1)The #PhillipsCurve (both w & w/o #NAIRU) is gone 2)Business cycle pic.twitter.com/N37Th9zano

— Satyen Baindur (@Satyen_Baindur) March 13, 2018

...fluctuations r _not_ driven by short-term demand shocks but fiscal/regulatory/technological/demographic 8-50y long cycles. 3)Risk-free bond yields may b low, but returns 2 capital r @ historic highs: ∴ no #SecularStagnation. Govt shd cncrn itslf w longterm growth & investment pic.twitter.com/KmR6noqkw2

— Satyen Baindur (@Satyen_Baindur) March 13, 2018

In a companion contribution, Volker Wieland discusses implications of a very low and/or time-varying R* 4 #TaylorRule, including alternative long and/or medium-term averages of R* & #FirstDifferences (not #levels) via @EconomicsOne @HooverInst @stanford https://t.co/Mx9kYCsnQ8

— Satyen Baindur (@Satyen_Baindur) March 13, 2018

The Gains from Globalization, Economic Growth and In-Country Inequality

#IMF Working Paper wp1854 'Distribution of Gains from #Globalization'. Notice first that *de jure* measures of Economic Liberalization [relative lack of] tariffs, trade taxes, capital movement restrictions, import barriers etc 4 #HighIncome countries peaked ~2005; declining since pic.twitter.com/sn8WRAPc8A

— Satyen Baindur (@Satyen_Baindur) March 14, 2018

Second, the marginal effect of globalization on economic growth declines with the level of globalization already achieved by the country - at a globalization score of about 80 the marginal effect of globalization on growth ceases to be positive within statistical error. The average #HighIncome country is already at a globalization score of ~77!  And many advanced economies have a globalization scores even higher. For countries with such high globalization scores, no further positive effect on growth can be expected, in this formulation, pic.twitter.com/5GYq5oAvTm

— Satyen Baindur (@Satyen_Baindur) March 14, 2018

Third, globalization improves within-country economic inequality, but only upto a globalization score of ~60. The average #MiddleIncome country has already achieved a score ~58, beyond which, further globalization would appear 2 worsen in-country inequality. via @LounganiPrakash pic.twitter.com/wHT66CvuOL

— Satyen Baindur (@Satyen_Baindur) March 14, 2018

The World Bank's Corporate Vulnerability Index: A Leading Indicator for Financial Crises?

.@WorldBank #CorporateVulnerabilityIndex: hope #LeadingIndicator #GrowthSlowdowns & #FinancialCrises esp #EmergingMarkets #DevelopingEconomies: 69 cntries, 14,207 listed
cos, 11 y [2006-16]. Corporate #LeverageRatio by #GeographicalRegion: all converge→~15%; except #SouthAsia pic.twitter.com/mgBjZeq62b

— Satyen Baindur (@Satyen_Baindur) March 12, 2018

...(which is likely almost all #IND companies), is ~25%. Could it also be considered an (admittedly somewhat indirect) index of how effective the (recently established) #MacroPru framework(s) is/r in the regions shown?

— Satyen Baindur (@Satyen_Baindur) March 12, 2018

https://t.co/heb4kXamlb

— Satyen Baindur (@Satyen_Baindur) March 12, 2018

Trade Openness and the 'Path to Riches'

.@blackrock @boijefd #Path2Riches Chart #Global Macro Outlook Feb 2018: Countries [#GDPperCapita as % of US] w #Trade openness: #TWN & #ROK #ExportLedGrowth clear; but 4 #CHN: initial trade opening stalls as #InvestmentLedGrowth takes over, hwvr, #GDPperCapita % US keeps rising! pic.twitter.com/AqgfjnEDim

— Satyen Baindur (@Satyen_Baindur) March 3, 2018

...More general lesson Trade is an important channel by which US #Stimulus cd 'spill over' internationally; why #Protectionism, by hampering the most efficient worldwide use of resources, discouraging #bestpractices adoption etc curbs both productivity growth & growth spillovers.

— Satyen Baindur (@Satyen_Baindur) March 3, 2018

Of course, keep in mind that even as their #GDPperCapita was rising as % of US, households in #China were saving about a fifth (~20%) of their income, a large fraction of which was channeled into #Investment, which, at its peak in 2011, was ~ 48% of #GDP! https://t.co/eSgzZZZBKQ

— Satyen Baindur (@Satyen_Baindur) March 4, 2018

Talent vs Luck: What Matters More in Success?

.@arxivblog #Talent vs #Luck: N=1000 agents w Capital C(t=0) = 10; Talent T_i Є (0,1) w NormDist(0.6,0.1); Period 40y w 500 events, 50% of which r lucky - increase agent i’s capital w prob α 2 Talent T_i; At end, highest capital w agent whose T_i barely above avg! (0.62 vs 0.6) pic.twitter.com/L5IWeuq5PL

— Satyen Baindur (@Satyen_Baindur) March 2, 2018

https://t.co/mg9UoVKDZd via @steinly0 @techreview

— Satyen Baindur (@Satyen_Baindur) March 2, 2018

One straightforward implication for #Grants disbursing agencies and #Innovation promotion authorities etc - better to widely distribute roughly equal monies transparently, and at outset, rather than 'pick winners' b4hand!

— Satyen Baindur (@Satyen_Baindur) March 2, 2018