How effective are sovereign debt restructurings in reducing debt-to-GDP ratios? We explore this empirically using a comprehensive dataset covering 115 countries over 1950–2021. After addressing selection into restructuring events through an Augmented Inverse Probability Weighted (AIPW) estimator, we show that debt restructuring has a significant and long-lasting impact on the debt-to-GDP ratio. The impact is larger when debt restructuring is combined with fiscal consolidation. In the short run, restructurings with face value reduction and higher creditor coordination are relatively more effective. In the long run, however, the depth of treatment is important, irrespective of the type of treatment.
In response to COVID-19, countries frequently adopted multiple types of policies to address the economic and financial effects of the pandemic. This paper analyzes the impact on bank lending of combinations or packages of policies (fiscal, monetary, and prudential) adopted across a broad sample of countries. Using a comprehensive policy announcement–level dataset together with bank-level information, we find that lending grew faster at banks in countries that announced large packages combining fiscal, monetary, and prudential measures (“all-out” packages), especially when uncertainty was high. Both the scope and size of policy packages were important: packages combining all three types of policies, but where only some were large, were relatively less effective in enhancing credit. The impact was stronger among more constrained banks with low equity levels. “all-out” packages also increased liquidity for bank-dependent firms but did not disproportionately benefit unviable firms.
Does partisanship influence loan allocation through the Paycheck Protection Program (PPP)? We examine the 2020 Presidential campaign contributions by lenders’ employees as a measure of partisanship and leverage the staggered rollout of the PPP under both Trump and Biden administrations to address this question. We find that partisan misalignment increases bank lending, particularly to small and first-time PPP borrowers, and those in Republican areas. This is consistent with Republicanleaning banks viewing the PPP’s 2021 phase as a legacy policy of the prior administration. Using county-level weekly unemployment insurance data, we also show that partisan misalignment is associated with higher PPP payroll coverage for small businesses. Our findings shed new light on the partisan-alignment phenomenon in finance.
Large price changes in industries affected by the COVID-19 pandemic caused erratic fluctuations in the U.S. headline inflation rate. This paper compares alternative approaches to filtering out the transitory effects of these industry price changes and measuring the underlying or core level of inflation over 2020- 2021, the height of the pandemic. The Federal Reserve’s preferred measure of core, the inflation rate excluding food and energy prices, performed poorly over that period: it was almost as volatile as headline inflation. Measures of core that exclude a fixed set of additional industries, such as the Atlanta Fed’s sticky-price inflation rate, were less volatile, but the least volatile were measures that filter out large price changes in any industry, such as the Cleveland Fed’s median inflation rate and the Dallas Fed’s trimmed mean inflation rate. These core measures followed smooth paths, drifting down when the economy was weak in 2020 and then rising as the economy rebounded.
The economic argument for globalization focuses on its aggregate economic gains. While economic models show that society benefits from trade integration overall, they also warn that there could be winners and losers. Economists have tended to assume that those left behind would be compensated or integrated in alternative productive activities. Yet, a vast empirical literature has established that in practice the benefits and costs of globalization have not been evenly shared across different groups of workers, industries, or locations.1 This in turn points to the limited or potentially ineffective use of supportive polices, such as trade adjustment programs, social protection, and place-based (regional) schemes. Globally, the median spending on active labor market programs, for example, is merely 0.3% of GDP, and 90% of countries spend less than 0.7% of GDP annually on such programs. Emerging markets typify this underinvestment, with annual spending in the bottom percentile of the global distribution. In this chapter, we zoom in on labor market policies as a tool to assist workers in their adjustment to globalization shocks. Specifically, we study the relationship between trade and technology shocks, labor market outcomes, and attitudes toward globalization. The underlying idea is that trade and technology shocks affect labor market outcomes and, in turn, these outcomes shape attitudes. Our interest is to better understand how labor market policies mediate these effects and can be leveraged to facilitate the adjustment to shocks and increase their political acceptability . To this end, we use a recent globalization and trade shock as case studies. The first is the large increase in imports from China in the 2000s across many countries (the so called “China shock”). We study the transmission of this trade shock to labor markets and in turn to trade attitudes; and how the sensitivity to labor outcomes differs depending on policy interventions. The second case study is the emergence of a new, less labor-intensive technology in vehicle production in the form of electric vehicles (EVs). We examine how the switch to producing electric vehicles impacted local labor markets across Europe, and how active labor market policies shaped the employment outcomes of affected workers.
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