Institutional Affiliation: University of Southern California
|Pandemic Shocks and Fiscal-Monetary Policies in the Eurozone: COVID-19 Dominance During January - June 2020|
with Yothin Jinjarak, Sameer Nair-Desai, Weining Xin, Joshua Aizenman: w27451
This case study compares the importance of prevailing market factors against that of COVID-19 dynamics and policy responses in explaining the evolution of Eurozone (EZ) sovereign spreads during the first half of 2020. Focusing on daily Eurozone CDS spreads, we adopt a multi-stage econometric approach. First, we estimate a multi-factor model for changes in EZ CDS spreads over the pre-COVID-19 period of January 2014 through June 2019. Then, we apply a synthetic control-type procedure to extrapolate model-implied changes in the CDS from July 2019 through June 2020. We find that the factor model does very well in tracing the realized sovereign spreads over the rest of 2019, but breaks down during the pandemic – diverging substantially in March 2020. In the second stage, focusing specifically o...
|Accounting for Global COVID-19 Diffusion Patterns, January-April 2020|
with Yothin Jinjarak, Sameer Nair-Desai, Weining Xin, Joshua Aizenman: w27185
Key factors in modeling a pandemic and guiding policy-making include mortality rates associated with infections; the ability of government policies, medical systems, and society to adapt to the changing dynamics of a pandemic; and structural factors. In the absence of vaccines, policies which limit social contact are a key strategy adopted by most countries. However, the strictness and timing of such policy interventions vary substantially across countries. Additionally, institutional and demographic characteristics may influence mortality dynamics both directly through the size of vulnerable populations, and indirectly through citizens’ perceptions and behavioral responses to stringency policies. This paper traces the cross-country associations between COVID-19 mortality, policy intervent...
|Inflation and Exchange Rate Targeting Challenges Under Fiscal Dominance|
with Joshua Aizenman, Yothin Jinjarak: w25996
Countries have increased significantly their public-sector borrowing since the Global Financial Crisis, potentially changing debt service costs sensitivity to tightening monetary policy. In this context, we test for greater fiscal dominance over 2000-2017 under Inflation Targeting (IT) and non-IT regimes. We find that evidence consistent with the presence of fiscal dominance varies across countries and debt configurations. Higher ratios of public debt-to-GDP may appear associated with lower policy interest rates in Advanced Economies. However, we find that the pattern of lower rates and higher debt in these countries is largely explained by a declining natural rate of interest. The most robust evidence of fiscal dominance lies among Emerging Markets under non-IT regimes, composed mostly of...