Papers by Nicoletta Batini
This Working Paper should not be reported as representing the views of the IMF. The views express... more This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper reviews the literature on the informal economy, focusing first on empirical findings and then on existing approaches to modeling informality within both partial and general equilibrium environments. We concentrate on labour and credit markets, since these tend to be most affected by informality. The phenomenon is particularly important in emerging and other developing economies, given their high degrees of informal labour and financial services and the implications these have for the effectiveness of macroeconomic policy. We emphasize the need for dynamic general equilibrium (DGE) and ultimately dynamic stochastic general equilibrium (DSGE) models for a full understanding of the costs, benefits and policy implications of informality. The survey shows that the literature on informality is quite patchy, and that there are several unexplored areas left for research.
Social Science Research Network, 2003
We follow in estimating via Maximum Likelihood a log-linear consumption function on UK data. In d... more We follow in estimating via Maximum Likelihood a log-linear consumption function on UK data. In doing so we consider various habit formation assumptions. We show that a model of purely "external" habits as in fits the UK data remarkably well, and possibly in a superior way than US data where, according to our estimates, consumers' habits look more "internal" in that they appear indexed to past average consumption of only a subset of (peer) consumers in the economy, rather than total past per capita consumption. We also find that for about one seventh of UK consumers, current consumption equals current income¾a strong violation of the permanent income hypothesis. Embedded in a sticky price-sticky inflation open-economy monetary model, the model that we estimate helps mimic the hump-shaped response of the output gap to income and interest rate shocks observed in the UK. Estimates of output Euler equations for the UK using a similar method agree with our general results. The consumption and output models that we estimate forecast significantly better than unrestricted open-economy VARs.
Climate Mitigation Policy in Denmark: A Prototype for Other Countries
SSRN Electronic Journal, 2021
Denmark has a highly ambitious goal of reducing greenhouse gas emissions 70 percent below 1990 le... more Denmark has a highly ambitious goal of reducing greenhouse gas emissions 70 percent below 1990 levels by 2030. While there is general agreement that carbon pricing should be the centerpiece of Denmark’s mitigation strategy, pricing needs to be effective, address equity and leakage concerns, and be reinforced by additional measures at the sectoral level. The strategy Denmark develops can be a good prototype for others to follow. This paper discusses mechanisms to scale up domestic carbon pricing, compensate households, and possibly combine pricing with a border carbon adjustment. It also recommends the use of revenue-neutral feebate schemes to strengthen mitigation incentives, particularly for transportation and agriculture, fisheries and forestry, though these schemes could also be applied more widely.
IMF Working Papers, 2019
France is the top agricultural producer in the European Union (EU), and agriculture plays a promi... more France is the top agricultural producer in the European Union (EU), and agriculture plays a prominent role in the country's foreign trade and intermediate exchanges. Reflecting production volumes and methods, the sector, however, also generates significant negative environmental and public health externalities. Recent model simulations show that a well-designed shift in production and consumption to make the former sustainable and align the latter with recommended values can curb these considerably and generate large macroeconomic gains. I propose a policy toolkit in line with the government's existing sectoral policies that can support this transition.
IMF Working Papers, 2016
We revisit the empirical relationship between private/public debt and output, and build a model t... more We revisit the empirical relationship between private/public debt and output, and build a model that reproduces it. In the model, the government provides financial assistance to credit-constrained agents to mitigate deleveraging. As we observe in the data, surges in private debt are potentially more damaging for the economy than surges in public debt. The model suggests two policy implications. First, capping leverage leads to milder recessions, but also implies more muted expansions. Second, with fiscal buffers, financial assistance to credit-constrained agents helps avoid stagnation. The growth returns from intervention decline as the government approaches the fiscal limit.
Staff Discussion Notes, 2016
DISCLAIMER: Staff Discussion Notes (SDNs) showcase policy-related analysis and research being dev... more DISCLAIMER: Staff Discussion Notes (SDNs) showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. The views expressed in Staff Discussion Notes are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
IMF Working Papers, 2010
This paper reviews the literature on the informal economy, focusing first on empirical findings a... more This paper reviews the literature on the informal economy, focusing first on empirical findings and then on existing approaches to modelling informality within both partial and general equilibrium environments. We concentrate on labour and credit markets, since these tend to be most affected by informality. The phenomenon is particularly important in emerging and other developing economies, given their high degrees of informal labour and financial services and the implications these have for the effectiveness of macroeconomic policy. We emphasize the need for dynamic general equilibrium (DGE) and ultimately dynamic stochastic general equilibrium (DSGE) models for a full understanding of the costs, benefits and policy implications of informality. The survey shows that the literature on informality is quite patchy, and that there are several unexplored areas left for research.
En este documento construimos un modelo de una economía pequeña y abierta con hogares parcialment... more En este documento construimos un modelo de una economía pequeña y abierta con hogares parcialmente dolarizados en sus tenencias de riqueza en moneda nacional y moneda extranjera como en Felices y Tuesta (2006). En este modelo el grado de dolarización es endógeno al grado de estabilización del tipo de cambio por parte del Banco Central. En este contexto, hemos identificado la respuesta de política monetaria óptima bajo una regla y bajo discreción, y calculamos el grado óptimo de estabilización del tipo de cambio. Estos resultados tienen implicancias de política para economías con dolarización parcial y metas inflacionarias. Los resultados del modelo sugieren tres lecciones de política. Primero, si bien la dolarización
IMF Working Papers, 2011
This Working Paper should not be reported as representing the views of the IMF. The views express... more This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper updates existing measures of the U.S. fiscal gap to include federal laws up to and including the mid-December 2010 federal fiscal stimulus. It then applies the methodology of generational accounting to establish how the burden of adjustment required to attain fiscal sustainability is shared across generations. We find that the U.S. fiscal and generational imbalances are large under plausible parametric assumptions, and, while not much affected by the financial crisis, they have not improved much by the passing of the Final Healthcare Legislation. We find that, under our baseline scenario, a full elimination of the fiscal and generational imbalances would require all taxes to go up and all transfers to be cut immediately and permanently by 35 percent. A delay in the adjustment makes it more costly.
We explore the costs and benefits of informality associated with the informal sector lying outsid... more We explore the costs and benefits of informality associated with the informal sector lying outside the tax regime in a two-sector New Keynesian model. The informal sector is more labour intensive, has a lower labour productivity, is untaxed and has a classical labour market. The formal sector bears all the taxation costs, produces all the government services and capital goods, and wages are determined by a real wage norm. We identify two welfare costs of informalization: (1) long-term costs restricting taxes to the formal sector and (2) short-term fluctuation costs of tax changes to finance fluctuations in government spending. The benefit of informality derives from its wage flexibility. We investigate whether taxing the informal sector and thereby reducing its size sees a net welfare improvement.
Abstract This paper explores the costs and benefits of informalization of the economy in a New Ke... more Abstract This paper explores the costs and benefits of informalization of the economy in a New Keynesian two-sector closed economy. The informal sector is more labour intensive, is untaxed and has a classical labour market. We consider the case where it is also a ‘hidden’ unobserved sector. The more capital intensive formal sector bears all the taxation costs and wages are determined by a real wage norm. We identify three welfare costs of informalization: (1) Long-term costs of a steady state where taxes are restricted to the formal sector (2) Short-term fluctuation costs of changes to taxes to finance fluctuations in government spending again restricted to the formal sector and (3) The costs associated with lack of observability of the informal sector. These mean,that inflation targeting using the interest rate can only target inflation in the formal sector. The benefit of an informal sector that is characterized by low labour market frictions derives from a possible contribution t...
IMF Working Papers, 2009
The views expressed in this Working Paper are those of the author(s) and do not necessarily repre... more The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. We develop a optimal rules-based interpretation of the 'three pillars macroeconomic policy framework': a combination of a freely floating exchange rate, an explicit target for inflation, and a mechanism than ensures a stable government debt-GDP ratio around a specified long run. We show how such monetary-fiscal rules need to be adjusted to accommodate specific features of emerging market economies. The model takes the form of two-blocs, a DSGE emerging small open economy interacting with the rest of the world and features, in particular, financial frictions It is calibrated using Chile and US data. Alongside the optimal Ramsey policy benchmark, we model the three pillars as simple monetary and fiscal rules including and both domestic and CPI inflation targeting interest rate rules alongside a 'Structural Surplus Fiscal Rule' as followed recently in Chile. A comparison with a fixed exchange rate regime is made. We find that domestic inflation targeting is superior to partially or implicitly (through a CPI inflation target) or fully attempting to stabilizing the exchange rate. Financial frictions require fiscal policy to play a bigger role and lead to an increase in the costs associated with simple rules as opposed to the fully optimal policy.
IMF Working Papers, 2012
The output effects of 2009 fiscal expansions have been hotly debated. But the discussion of fisca... more The output effects of 2009 fiscal expansions have been hotly debated. But the discussion of fiscal multipliers is even more relevant now that several European countries have had to quickly retract their stimulus measures in an effort to regain market confidence. Using regime-switching VARs we estimate the impact of fiscal adjustment on the United States, Europe and Japan allowing for fiscal multipliers to vary across recessions and booms. We also estimate ex ante probabilities of recessions derived in association with different-sized and different types of consolidation shocks (expenditure-versus tax-based). We use these estimates to understand how consolidations should be designed to be most effective in terms of permanently and rapidly reducing a country's debt-to-GDP ratio. The main finding is that smooth and gradual consolidations are to be preferred to frontloaded or aggressive consolidations, especially for economies in recession facing high risk premia on public debt, because sheltering growth is key to the success of fiscal consolidation in these cases.
SSRN Electronic Journal, 2004
NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate d... more NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment. The views in this paper are solely the responsibility of the author and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or any other person associated with the Federal Reserve System. References to International Finance Discussion Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or author. Recent IFDPs are available on the Web at www.federalreserve.gov/pubs/ifdp.
We are grateful to the Sloan Foundation and the NBER for their generous support, and to Company o... more We are grateful to the Sloan Foundation and the NBER for their generous support, and to Company officials-who shall remain nameless-for allowing us to learn about their organization, and providing us with the data to carry out this research. We also thank
SSRN Electronic Journal, 1999
SSRN Electronic Journal, 2003
We follow in estimating via Maximum Likelihood a log-linear consumption function on UK data. In d... more We follow in estimating via Maximum Likelihood a log-linear consumption function on UK data. In doing so we consider various habit formation assumptions. We show that a model of purely "external" habits as in fits the UK data remarkably well, and possibly in a superior way than US data where, according to our estimates, consumers' habits look more "internal" in that they appear indexed to past average consumption of only a subset of (peer) consumers in the economy, rather than total past per capita consumption. We also find that for about one seventh of UK consumers, current consumption equals current income¾a strong violation of the permanent income hypothesis. Embedded in a sticky price-sticky inflation open-economy monetary model, the model that we estimate helps mimic the hump-shaped response of the output gap to income and interest rate shocks observed in the UK. Estimates of output Euler equations for the UK using a similar method agree with our general results. The consumption and output models that we estimate forecast significantly better than unrestricted open-economy VARs.
Documentos de Trabajo (Banco Central de …, 2006
Aunque abundan los estudios sobre metas de inflación en países industriales, ha habido muy poco a... more Aunque abundan los estudios sobre metas de inflación en países industriales, ha habido muy poco análisis de los efectos de las metas de inflación en las economías emergentes. Basado en una nueva y detallada encuesta a 31 bancos centrales, este artículo muestra que las metas de inflación en mercados emergentes traen beneficios significativos a los países que las adoptan en comparación con otras estrategias, tales como metas monetarias o cambiarias. En efecto, al comparar el desempeño de economías con metas de inflación con una muestra de países que aplican otros esquemas, los autores muestran que se logran mejoras sustanciales al anclar la inflación y las expectativas inflacionarias, sin por eso causar efectos adversos sobre el producto. Además, con las metas de inflación, las tasas de interés, el tipo de cambio y las reservas internacionales se hacen menos volátiles, y el riesgo de sufrir una crisis monetaria es menor que donde se siguen metas monetarias o cambiarias. Curiosamente, las metas de inflación parecen superar a los esquemas que fijan el tipo de cambio, incluso cuando la comparación considera solo aquellos que han tenido éxito. De la encuesta se deduce que no es necesario que los países cumplan con una serie de restricciones institucionales, técnicas o económicas para poder adoptar con éxito un régimen de metas de inflación.
How does informality in emerging economies affect the conduct of monetary policy? To answer this ... more How does informality in emerging economies affect the conduct of monetary policy? To answer this question we construct a two-sector, formal-informal new Keynesian closed-economy. The informal sector is more labour intensive, is untaxed, has a classical labour market, faces high credit constraints in financing investment and is less visible in terms of observed output. We compare outcomes under welfare-optimal monetary policy, discretion and welfare-optimized interest-rate Taylor rules building the model in stages; first with no frictions in these two markets, then with frictions in only the formal labour market and finally with frictions on both credit markets and the formal labour market. Our main conclusions are first, labour and financial market frictions, the latter assumed to be stronger in the informal sector, cause the time-inconsistency problem to worsen. The importance of commitment therefore in- creases in economies characterized by a large informal sector with the feature...
The Shape of Stochastic-Simulation Generated Taylor Curves
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Papers by Nicoletta Batini