The evolution of platform gig work, 2012-2021

Andrew Garin, Emilie Jackson, Dmitri K. Koustas & Alicia Miller in this NBER paper:

We document the dynamics of tax-based measures of work mediated by online platforms from 2012 through 2021. We present a measurement framework to account for high reporting thresholds on some information returns using returns from states with lower reporting thresholds to provide a more complete estimate of total platform work. Updating data through 2021 allows us to provide the most comprehensive estimates of the COVID-19 pandemic on tax filing behavior.

We find that the number of workers receiving information returns not subject to the 1099-K gap increased dramatically during the pandemic, with least 5 million individuals receiving information returns from platform gig work by 2021, nearly all from transportation platforms.

We present evidence that the availability of expanded unemployment insurance benefits resulted in many individuals who were platform workers in 2019 not reporting any self-employment income in 2020-2021. At the same time, other services done by platform gig workers increased dramatically by at least 3.1 million people between 2019 and 2021. Interestingly, the broader 1099-contract economy follows a different trend, declining during this period, suggesting the challenges for tax administration are largely concentrated among platform gig workers, at least through 2021.

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Open banking’s far-fetched promise of a financial revolution

Giorgio Barba Navaretti, Giacomo Calzolari and Alberto Pozzolo in this voxeu article:

Open banking involves giving third parties access to information that is otherwise captive in a bilateral relationship between a provider of financial services and its client. Yet, there are considerable limits to the diffusion of financial information and to the use of such information to enhance competition. This column argues that the scope and the aims of open banking, although potentially ground-breaking, may thus be overstated. A new regulatory framework should be devised to deal with the potential shortcomings of open banking along the lines of the EU’s Digital Markets Act and Digital Services Act.

25 Years of European Central Bank

The ECB was established on 1 June 1998, to launch the euro and safeguard its value.

The Central bank kickstarted celebrations to mark its 25th anniversary.

The distinction between Keynesians and Monetarists is obsolete

Coen Teulings in this voxeu article:

Last week Robert Lucas passed away. His work changed macroeconomics forever. The idea of rational expectations has permeated macroeconomic models of all walks, at the University of Chicago as well as MIT – the cradles of Monetarism and New Keynesianism, respectively. This column argues that the distinction between Keynesianism and Monetarism is obsolete for understanding the current macro debate since both schools rely on Walrasian economics. A more useful distinction is between Neoclassicals (embracing both Keynesians and Monetarists) and Neo-Austrians. This distinction allows for an alternative view of the role of public debt in the economy.

Commencement of the e-HK Dollar Pilot Programme

Eddie Yue, Chief Executive of the Hong Kong Monetary Authority, in this speech:

Central bank digital currency, or CBDC, is one of the hottest topics in the central banking community today. Over a hundred central banks are studying it and a few dozens of them are working on various types of pilot trials.

The HKMA has been researching and piloting on CBDC since 2017. Apart from the exciting work that we are doing with our three partner central banks on the application of wholesale CBDC under Project mBridge, the HKMA has also been exploring the prospect of issuing retail CBDC, or e-HKD, in Hong Kong.

We conducted two rounds of market consultation in the past two years. Overall, the respondents are supportive of the e-HKD initiative and believe that e-HKD has the potential to make payments faster and more efficient while supporting the digital economy.

However, we are cognizant of the fact that e-HKD is not and should not be merely a technology project. Its implementation would entail far-reaching implications on a wide range of issues relating to areas such as legal, regulatory, policy, financial stability, privacy, cybersecurity, and interaction with existing payment methods.

We also understand that e-HKD would be a critical and complex financial infrastructure project that may take years to complete. Therefore, we announced in September last year that we would adopt a three-rail approach to pave the way for possible implementation of e-HKD:

• • Rail 1 aims to lay the technology and legal foundations for supporting the implementation of e-HKD.
  • Rail 2 focuses on application research and pilots, and it runs in parallel with Rail 1.
  • Rail 3 is concerned about launching e-HKD, which will depend on the actual progress made under Rail 1 and Rail 2, as well as the pace of relevant market development.

This comprehensive three-rail approach will ensure that Hong Kong continues to play a leading role in the global financial landscape by getting ourselves ready as best as we can in terms of implementing retail CBDC.

 

The Macroeconomic Consequences of Exchange Rate Depreciations

Masao Fukui, Emi Nakamura & Jón Steinsson in the new NBER paper:

We study the consequences of “regime-induced” exchange rate depreciations by comparing outcomes for peggers versus floaters to the US dollar in response to a dollar depreciation. Pegger currencies depreciate relative to floater currencies and these depreciations are strongly expansionary. The boom is not associated with an increase in net exports, or a fall in nominal interest rates in the pegger countries. This suggests that expenditure switching and domestic monetary policy are not the main drivers of the boom. We develop a financially driven exchange rate (FDX) model in which multiple shocks originating in the financial sector drive exchange rates and households and firms can borrow in foreign currencies. Following a depreciation, UIP deviations lower the costs of borrowing from abroad and stimulate the economy, as in the data. The model is consistent with (unconditional) exchange rate disconnect and the Mussa facts, even though exchange rates have large effects on the economy.

Central Bank Corridor system: Need to Shift from abundant reserves to scarce reserves

Claudio Borio of BIS in this paper says central banks

Since the Great Financial Crisis, a growing number of central banks have adopted abundant reserves systems (“floors”) to set the interest rate. However, there are good grounds to return to scarce reserve systems (“corridors”).

First, the costs of floor systems take considerable time to appear, are likely to grow and tend to be less visible. They can be attributed to independent features of the environment which, in fact, are to a significant extent a consequence of the systems themselves.

Second, for much the same reasons, there is a risk of grossly overestimating the implementation difficulties of corridor systems, in particular the instability of the demand for reserves.

Third, there is no need to wait for the central bank balance sheet to shrink before moving in that direction: for a given size, the central bank can adjust the composition of its liabilities. Ultimately, the design of the implementation system should follow from a strategic view of the central bank’s balance sheet.

A useful guiding principle is that its size should be as small as possible, and its composition as riskless as possible, in a way that is compatible with the central bank fulfilling its mandate effectively. 

What happens when economists grow old? Does their creativity decline?

Daniel Hamermesh and Lea-Rachel Kosnik  in this voxeu article:

The arc of creative activity may rise quickly and then decline with age. This column asks whether this is true for economists and, if so, why. An analysis of all articles published in the ‘Top Five’ economics journals between 1969 and 2018 reveals that economists who had published less in the previous decade of their careers publish less in the current decade. Scholars were less likely to publish after retirement, but those who had published more top-level research in their third decade were less likely to be retired. Perhaps senior economists continue to produce and publish top-level research because it is fun and just might benefit society.

More than Words: Twitter Chatter and Financial Market Sentiment

Travis Adams, Andrea Ajello, Diego Silva and Francisco Vazquez-Grande in this Federal Reserve paper:

We build a new measure of credit and financial market sentiment using Natural Language Processing on Twitter data. We find that the Twitter Financial Sentiment Index (TFSI) correlates highly with corporate bond spreads and other price- and survey-based measures of financial conditions.

We document that overnight Twitter financial sentiment helps predict next day stock market returns.  Most notably, we show that the index contains information that helps forecast changes in the U.S. monetary policy stance: a deterioration in Twitter financial sentiment the day ahead of an FOMC statement release predicts the size of restrictive monetary policy shocks. Finally, we document that sentiment worsens in response to an unexpected tightening of monetary policy.

 

 

Impact of disinflation on income of workers and firms

Benoit Mojon, Gabriela Nodari and Stefano Siviero in this BIS Bulletin article:

• Insights into how the incomes of workers and firms absorb the disinflation burden in the euro area and the United States can be gained by decomposing changes in the GDP deflator into its underlying components.
• Nominal wage increases of 4–5% in the euro area and 3–4% in the United States this year and next year are compatible with bringing inflation within reach of 2% by end-2024, provided that import price growth slows and profit margins stabilise or slightly shrink.
• From a historical perspective, the 2023–24 disinflation path for prices and nominal wages is within the range of past disinflation episodes in both economies, although it remains uncertain how price and wage setters will react to the above-target inflation from 2021 onwards.

The return of industrial policy

Prof Douglas Irwin of Dartmouth College in this IMF Finance & Development Article:

Geopolitics is rapidly changing the landscape of world trade. The policy environment of just a few decades ago seems like a distant memory. During the reform period of the 1990s and 2000s, developing and transition economies opened up their markets and embraced globalization. That period saw the creation of the World Trade Organization, establishing a rules-based system of nondiscriminatory trade. It was also marked by an absence of geopolitical tensions as China focused on growth and Russia struggled with stabilization.

Now policymakers debate the future of globalization. They worry about the fragmentation of the world economy and the flouting of global trade rules. Trade interventions are on the rise, in the form of industrial policies and subsidies, import restrictions based on national security and environmental concerns, and export controls to punish geopolitical rivals and ensure domestic supply.

What should developing economies do to navigate this new environment? Should they adopt similar policies, turning inward to protect key sectors with subsidies and trade controls?

He says these ideas are coming back because of wrong reading of history:

Part of the reason for turning inward was a particular interpretation of history. The belief that richer countries were successful because they protected manufacturing gave respectability to industrial policy. That turned out to be a misreading of history. Despite high tariffs, the United States developed as an open economy—open to immigration, capital, and technology—and one with an exceptionally large domestic market that was fiercely competitive. Furthermore, the high-tariff United States overtook free-trade Britain in per capita income in the late 19th century by increasing labor productivity in the service sector, not by raising productivity in the manufacturing sector (Broadberry 1998). In Western Europe, growth was related to the shifting of resources out of agriculture and into industry and services. Trade policies designed to protect agriculture from low prices likely slowed this transition in countries such as Germany.

While across-the-board import substitution fell out of favor decades ago, the debate over industrial policy continues to this day. 

 

Open mouth operations: Monetary policy by threats and argument

Prof Lars Jonung of Lund University, in this interesting paper discusses Swedish monetary policy in the 1980s:

After World War II and prior to the financial deregulation of the 1980s, monetary policy in Sweden as well as in other western European countries rested chiefly on a system of far-reaching non-market-oriented controls of credit flows and interest rates. How was monetary policy conducted in such an environment of financial repression, where the central bank was unable to rely on traditional monetary policy instruments working on “free” and “unregulated” money and capital markets? This study provides an answer from the Swedish experience. It is based on a unique set of confidential minutes from about 160 monthly meetings between the Riksbank and the commercial banks during the years 1956-73.

The examination of the minutes demonstrates that monetary policy was framed in a process involving threats and arguments in a small and closed club involving the central bank and the chief executives of the commercial banks. According to a joke assigned to Erik Lundberg, “open market operations were replaced by open mouth operations” – albeit the dialogue was kept within the club. When Swedish financial markets were deregulated in the 1980s, the standard tools of monetary policy rapidly replaced the meetings between the central bank and the commercial banks.

India and COP-26 Commitments: Challenges for the Mining sector

V. Dhanya, Gautam and Arjit Shivhare in RBI Bulletin for May-23 :

In COP26-Glasgow, India made a commitment to meet 50 per cent of its energy requirement with renewable energy by 2030 and to achieve net-zero emission by 2070. In this context, this paper examines India’s future path to energy security and its impact on the mining sector.

Highlights:

• • India has made significant strides in renewable installed capacity and its share in total installed capacity is at 41.3 per cent (including large hydro) in March 2023. Investment in renewable energy has also more than doubled in 2021-22.
  • With the move towards clean energy, the mining sector is likely to see a gradual shift from coal to other essential minerals required for production of renewable energy.
  • India’s share in global reserve of critical minerals such as cobalt, nickel, and graphite are low. Present clean energy technologies are mineral intensive, the supply of which is concentrated in a few countries. Global coordination and technological innovations for reducing mineral requirements in producing renewable energy would play a major role in achieving a cost-effective sustainable energy transition.

RBI must adopt well-defined and time-bound guidelines on replacing soiled notes

My piece in moneycontrol on RBI’s decision to withdraw the Rs 2000 note.

A Teacher Writes to Students Series: Psychopathy versus Compassionate Morality

I had posted earlier that Prof AJC Bose of SRCC will be writing to students via this blog.

Here is Second Article of the series:

Psychopathy versus Compassionate Morality
By Annavajhula J C Bose, PhD
Department of Economics, SRCC, DU

In the real world, you are a psychopath if you show up antisocial personality disorder.

That means that you copiously exhibit any of these or some of these or all of these symptoms: you are regularly breaking or flouting rules or laws. You are lying and deceiving others. You are impulsive. You are aggressive. You have disregard for the safety of others. You are irresponsible. And you have no remorse or guilt.

Nigeria’s CBDC eNaira: One Year After

Jookyung Ree of IMF in this paper reviews one year of Nigeria’s CBDC – eNaira:

This paper reflects on the first year of the eNaira—the first CBDC in Africa. Despite the laudable undisrupted operation for the first full year, the CBDC project has not yet moved beyond the initial wave of limited adoption. Network effects suggest the initial low adoption spell will require a coordinated policy drive to break it. The eNaira’s potential in financial inclusion requires a strategy to set the right relationship with mobile money, given the former’s potential to either complement or substitute the latter. Cost savings from integrating CBDC—as a bridge vehicle—in the remittance process may also be substantial.

Review of Total Expense Ratio charged by India’s Mutual Funds

SEBI has released a comprehensive report computing Total Expense Ratio (TER) of India’s Mututal Funds. It has also suggested a roadmap to lower  TER of the funds.

Ujjal Das of Valuresearch online helps understand the main ideas of the report. In nut shell, TER will come down across MFs which shoukd translate to higher returns for investors.

 

Cross-border Spillovers: How US Financial Conditions affect M&As Around the World

Katharina Bergant, Prachi Mishra & Raghuram Rajan in the new NBER paper:

We find that financial conditions in the core have significant spillover effects on cross-border mergers and acquisitions (M&As). On average, a 1 percentage point easing of the IMF US Financial Conditions Index is associated with approximately a 10% higher volume of cross-border M&As. The spillovers are stronger for countries with more liabilities denominated in foreign currency (or in US dollars). We find that the spillovers are driven by changes in US financial conditions, rather than changes in Euro Area conditions. Deals that happen when financial conditions in the US are tighter (and therefore acquisitions fewer) add more value for the acquirers, as reflected in higher acquirer excess stock returns around the announcement.

Our Thousand-Year Struggle over Technology and Prosperity

Profs Simon Johnson And Daron Acemoglu have written a new book: Power and Progress.

RO Johnson of INET discusses the book with Simon Johnson:

Rob Johnson:

So, you have this book, extraordinary book, 500 pages plus all kinds of beautiful explorations as a doctor’s son, diagnosis, potential remedies, the yin and yang of each perspective scenario and remedy and possibilities. It doesn’t come across as dogmatic, it comes across as thoughtful, it comes across as deep. What inspired you to write this book? What did you see and what did Daron see that brought you to the focus on this effort?

Simon Johnson:

Well, Rob, as I think Daron and I have worked together a really long time, actually 25 years, pretty close. And we’ve been talking about when societies do better and when there are problems. But it was really the election of 2016 I think that catalyze us to think that maybe perhaps we needed to focus a bit more on the technology of today and the technology of tomorrow and understand why what many people in including me personally had thought was going to be the promise of the internet. The promise of digital technology, why that had not only failed to deliver but why that had actually created some problems that we had to now deal with.

And of course, as we started to write, it became clear that artificial intelligence and now what everyone’s calling generative AI or versions of chat GPT, this was going to become really very important for the discussion about economic policy as well as everything else. So, all these threads came together as we wrote the book, Rob.

 

Has the Phillips Curve Become Steeper?

Anil Ari, Daniel Garcia-Macia, Shruti Mishra in this IMF paper look at the changes in Phillips Curve due to ongoing changes in economy:

This paper analyzes whether structural changes in the aftermath of the pandemic have steepened the Phillips curves in advanced economies, reversing the flattening observed in recent decades and reducing the sacrifice ratio associated with disinflation. Particularly, analysis of granular price quote data from the UK indicates that increased digitalization may have raised price flexibility, while de-globalization may have made inflation more responsive to domestic economic conditions again.

Using sectoral data from 24 advanced economies in Europe, higher digitalization and lower trade intensity are shown to be associated with steeper Phillips curves. Post-pandemic Phillips curve estimates indicate some steepening in the UK, Spain, Italy and the euro area as a whole, but at magnitudes that are too small to explain the entire surge in inflation in 2021–22, suggesting an important role for outward shifts in the Phillips curve.