We develop a general equilibrium model that highlights the trade-offs between physical and digital forms of retail central bank money. The key differences between cash and central bank digital currency (CBDC) include transaction efficiency, possibilities for tax evasion, and, potentially, nominal rates of return. We establish conditions under which cash and CBDC can co-exist and show how government policies can influence relative holdings of cash, CBDC, and other assets. We illustrate how a CBDC can facilitate negative nominal interest rates and helicopter drops, and also how a CBDC can be structured to prevent capital flight from other assets.

This paper analyzes the evolution of inequality in Poland during the economic transition that began in 1989-1990. Using microdata from the Household Budget Surveys, we find that, after a brief spike in 1989, income and consumption inequality actually declined to below pretransition levels during 1990-1992 and then increased gradually, rising only moderately above pretransition levels by 1997. In sharp contrast, inequality in labor earnings increased markedly and consistently throughout the 1990-1997 period. We find that social transfer mechanisms, including pensions, played an important role in mitigating increases in both overall inequality and poverty. We argue that, from a political economy perspective, transfer mechanisms were well designed to reduce political resistance to market-oriented reforms in the early years of transition, paving the way for rapid growth. Finally, we provide cross-country evidence from the transition economies that is consistent with our interpretation of the Polish experience and is also consistent with recent work in growth theory suggesting that redistribution that reduces inequality can enhance growth.

In this paper, we use micro panel data to examine the effects of oil price changes on employment and real wages, at the aggregate and industry levels.We also measure differences in the employment and wage responses for workers differentiated on the basis of skill level.We find that oil price increases result in a substantial decline in real wages for all workers, but raise the relative wage of skilled workers.The use of panel data econometric techniques to control for unobserved heterogeneity is essential to uncover this result, which is completely hidden in OLS estimates.We find that changes in oil prices induce changes in employment shares and relative wages across industries.However, we find little evidence that oil price changes cause labor to consistently flow into those sectors with relative wage increases.

How Does Globalization Affect the Synchronization of Business Cycles? by M. Ayhan Kose, Eswar S. Prasad and Marco E. Terrones. Published in volume 93, issue 2, pages 57-62 of American Economic Review, May 2003

We provide new evidence on the cyclicality of employers' real labor costs using BLS establishment job data for the 1982–2018 period. Average straight-time wages have become countercyclical since the financial crisis and the subsequent Great Recession. So have benefit expenditures and overall labor costs, as well as major benefit expenditures, including health insurance and Social Security. Consistent with prior literature, we find that total earnings—the sum of straight-time wages, bonuses, and overtime earnings—were procyclical before 2008; even earnings have become countercyclical since then. The increasing countercyclicality of labor costs is largely attributable to periods with below-trend GDP.

China has achieved tremendous economic progress in the last three decades, but there is much work to be done to make the economy resilient to large shocks, ensure the sustainability of its growth, and translate this growth into corresponding improvements in the economic welfare of its citizens. We discuss the complex challenges that Chinese policymakers face in striking the right balance in terms of speed and coordination of reforms. We argue that China's current stage of development, along with its rising market orientation and increasing integration with the world economy, may make the incremental and piecemeal approaches to reforms increasingly untenable and, in some cases, could even generate risks of their own. The present favorable domestic and external circumstances provide an excellent window of opportunity for bolder reforms and for tackling some deep-rooted problems without causing much economic disruption.

Using country- and institution-level data, we find that the “coming wave” of emerging- market (EM) investors systematically over- or underweight their equity portfolio holdings in a way that reflects the influences of past capital and trade flows from a foreign country. We interpret this finding as support for van Nieuwerburgh and Veldkamp (2009) information endowment hypothesis. Strong past capital and trade flows create an information advantage that leads EM investors to disproportionately overweight a given foreign market, even relative to developed market investor counterparts. We also pursue predictions of the information endowment hypothesis by constructing novel information-advantage proxies based on relationships among investment firms and the headquarters of their parent companies. These proxies also offer reliable explanatory power for international portfolio allocations.

We develop a new dynamic factor model to jointly characterize global macroeconomic and financial cycles and the spillovers between them. The model decomposes macroeconomic cycles into the part driven by global and country-specific macro factors and the part driven by spillovers from financial variables. We consider cycles in macroeconomic aggregates (output, consumption, and investment) and financial variables (equity and house prices, and interest rates). The global macro factor plays a major role in explaining G-7 business cycles, but there are also discernible spillovers from equity and house price shocks onto macroeconomic aggregates, at least over the past two decades, accounting for up to 17 % of the variation in global business cycle fluctuations. These spillovers operate mainly through the global macro factor rather than the country-specific macro factors (i.e., these spillovers affect business cycles in all G-7 economies), and are stronger for output and investment fluctuations and more prominent in the period leading up to and following the global financial crisis. We find weaker evidence of spillovers from macroeconomic cycles to financial variables, perhaps reflecting the predictive power of global financial markets.