Francesca G Caselli's Books

Expectations' Anchoring and Inflation Persistence

By: Mr.Rudolfs Bems,Francesca G Caselli,Francesco Grigoli,Bertrand Gruss,Weicheng Lian

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Expectations' Anchoring and Inflation Persistence

By: Mr.Rudolfs Bems,Francesca G Caselli,Francesco Grigoli,Bertrand Gruss,Weicheng Lian

Understanding the sources of inflation persistence is crucial for monetary policy. This paper provides an empirical assessment of the influence of inflation expectations' anchoring on the persistence of inflation. We construct a novel index of inflation expectations' anchoring using survey-based inflation forecasts for 45 economies starting in 1989. We then study the response of consumer prices to terms-of-trade shocks for countries with flexible exchange rates. We find that these shocks have a significant and persistent effect on consumer price inflation when expectations are poorly anchored. By contrast, inflation reacts by less and returns quickly to its pre-shock level when expectations are strongly anchored.

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International Monetary Fund

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ISBN 10

148439223X

ISBN 13

9781484392232

Bunching at 3 Percent: The Maastricht Fiscal Criterion and Government Deficits

By: Francesca G Caselli,Mr.Philippe Wingender

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Bunching at 3 Percent: The Maastricht Fiscal Criterion and Government Deficits

By: Francesca G Caselli,Mr.Philippe Wingender

This paper estimates the effects of the Maastricht treaty’s fiscal criterion on EU countries’ general government deficits. We combine treatment effects methods with bunching estimation, and find that the 3 percent deficit rule acts as a “magnet”, increasing the number of observations around the threshold, while reducing the occurrence of both large government deficits and surpluses. After the rule is adopted, the distribution of government deficits among EU countries displays 20 percent excess mass around the deficit ceiling compared to a counterfactual distribution in which countries have the same observable characteristics but without the fiscal rule. Most of the bunching response comes from a reduction in the number of high deficit observations. We also find that the average treatment effect on fiscal deficits is positive and statistically significant. Finally, we derive country-specific impacts under a rank invariance assumption and find that all EU countries have seen their fiscal position improve on average as a result of the deficit rule.

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International Monetary Fund

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ISBN 10

1484371739

ISBN 13

9781484371732

Gains from Anchoring Inflation Expectations: Evidence from the Taper Tantrum Shock

By: Mr.Rudolfs Bems,Francesca G Caselli,Mr.Francesco Grigoli,Bertrand Gruss

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Gains from Anchoring Inflation Expectations: Evidence from the Taper Tantrum Shock

By: Mr.Rudolfs Bems,Francesca G Caselli,Mr.Francesco Grigoli,Bertrand Gruss

Many argue that improvements in monetary policy frameworks in emerging market economies over the past few decades, have made them more resilient to external shocks. This paper exploits the May 2013 taper tantrum in the United States to study the reaction of 18 large emerging markets to an external shock, conditioning on their degree of inflation expectations' anchoring. We find that while the tapering announcement negatively affected growth prospects regardless of the level of anchoring, countries with weakly anchored inflation expectations experienced larger exchange rate pass-through to consumer prices, hence comparatively higher inflation. We conclude that efforts to improve the extent of anchoring of inflation expectations in emerging markets pay off, as they ease the trade-off that central banks face when external shocks weaken growth prospects and trigger currency depreciations.

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International Monetary Fund

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ISBN 10

1498306055

ISBN 13

9781498306058

Do Fiscal Rules Cause Better Fiscal Balances? A New Instrumental Variable Strategy

By: Francesca G Caselli,Julien Reynaud

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Do Fiscal Rules Cause Better Fiscal Balances? A New Instrumental Variable Strategy

By: Francesca G Caselli,Julien Reynaud

This paper estimates the causal effect of fiscal rules on fiscal balances in a panel of 142 countries over the period 1985-2015. Our instrumental variable strategy exploits the geographical diffusion of fiscal rules across countries. The intuition is that reforms in neighboring countries may affect the adoption of domestic reforms through peer pressure and imitational effects. We find that fiscal rules correlate with lower deficits, but the positive link disappears when endogeneity is correctly addressed. However, when considering an index of fiscal rules’ design, we show that well-designed rules have a statistically significant impact on fiscal balances. We conduct several robustness tests and show that our results are not affected by weak instrument problems.

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International Monetary Fund

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ISBN 10

1498302831

ISBN 13

9781498302838

Did the Exchange Rate Floor Prevent Deflation in the Czech Republic?

By: Francesca G Caselli

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Did the Exchange Rate Floor Prevent Deflation in the Czech Republic?

By: Francesca G Caselli

To fight deflationary pressures at the zero lower bound, in November 2013, the Czech National Bank (CNB) introduced a one-sided floor on the exchange rate, as an additional monetary policy instrument. This paper investigates the impact of the FX floor on inflation in the Czech Republic, by comparing actual inflation with counterfactuals in the absence of the exchange rate floor. Three different empirical strategies are implemented: an event study, difference-in-difference regressions and a synthetic control method. The empirical results provide evidence that the exchange rate floor was effective in fighting deflationary pressures and prevented inflation from going into negative territory. The magnitude of the effect ranges between 0.5 to 1.5 percentage points. The results are robust to different econometric specifications.

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International Monetary Fund

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ISBN 10

148431929X

ISBN 13

9781484319291

On the Benefits of Repaying

By: Francesca G Caselli,Matilde Faralli,Paolo Manasse,Ugo Panizza

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On the Benefits of Repaying

By: Francesca G Caselli,Matilde Faralli,Paolo Manasse,Ugo Panizza

This paper studies whether countries benefit from servicing their debts during times of widespread sovereign defaults. Colombia is typically regarded as the only large Latin American country that did not default in the 1980s. Using archival research and formal econometric estimates of Colombia's probability of default, we show that in the early 1980s Colombia's fundamentals were not significantly different from those of the Latin American countries that defaulted on their debts. We also document that the different path chosen by Colombia was due to the authorities' belief that maintaining a good reputation in the international capital market would have substantial long-term payoffs. We show that the case of Colombia is more complex than what it is commonly assumed. Although Colombia had to re-profile its debts, high-level political support from the US allowed Colombia do to so outside the standard framework of an IMF program. Our counterfactual analysis shows that in the short to medium run, Colombia benefitted from avoiding an explicit default. Specifically, we find that GDP growth in the 1980s was higher than that of a counterfactual in which Colombia behaved like its neighboring countries. We also test whether Colombia's behavior in the 1980s led to long-term reputational benefits. Using an event study based on a large sudden stop, we find no evidence for such long-lasting reputational gains.

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International Monetary Fund

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ISBN 10

1513596136

ISBN 13

9781513596136

Non-Linear Exchange Rate Pass-Through in Emerging Markets

By: Francesca G Caselli,Agustin Roitman

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Non-Linear Exchange Rate Pass-Through in Emerging Markets

By: Francesca G Caselli,Agustin Roitman

This paper estimates exchange rate pass-through to consumer prices in emerging markets focusing on non-linearities and asymmetries. We document non-linearities and asymmetries in the transmission of exchange rate fluctuations to prices using local projection techniques to obtain state dependent impulse responses in a panel of 28 emerging markets. We find significant evidence of non-linearities during episodes of depreciation greater than 10 and 20 percent. More specifically, we find that, after one month, the exchange rate pass-through coefficient is equal to 18 and 25 percent respectively, compared to a coefficient of 6 percent in the linear case. We also investigate the role of temporary vs. permanent shocks and the adoption of an inflation targeting regime in the transmission from exchange rate movements to prices. We perform a set of robustness checks, addressing the presence of outliers and potential endogeneity concerns.

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International Monetary Fund

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ISBN 10

151357826X

ISBN 13

9781513578262

Gender and Employment in the COVID-19 Recession: Evidence on “She-cessions”

By: Mr. John C Bluedorn,Francesca G Caselli,Mr. Niels-Jakob H Hansen,Mr. Ippei Shibata,Ms. Marina Mendes Tavares

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Gender and Employment in the COVID-19 Recession: Evidence on “She-cessions”

By: Mr. John C Bluedorn,Francesca G Caselli,Mr. Niels-Jakob H Hansen,Mr. Ippei Shibata,Ms. Marina Mendes Tavares

Early evidence on the pandemic’s effects pointed to women’s employment falling disproportionately, leading observers to call a “she-cession.” This paper documents the extent and persistence of this phenomenon in a quarterly sample of 38 advanced and emerging market economies. We show that there is a large degree of heterogeneity across countries, with over half to two-thirds exhibiting larger declines in women’s than men’s employment rates. These gender differences in COVID-19’s effects are typically short-lived, lasting only a quarter or two on average. We also show that she-cessions are strongly related to COVID-19’s impacts on gender shares in employment within sectors.

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International Monetary Fund

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ISBN 10

1513575929

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9781513575926

Is Inflation Domestic or Global? Evidence from Emerging Markets

By: Mr.Rudolfs Bems,Francesca G Caselli,Francesco Grigoli,Bertrand Gruss,Weicheng Lian

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Is Inflation Domestic or Global? Evidence from Emerging Markets

By: Mr.Rudolfs Bems,Francesca G Caselli,Francesco Grigoli,Bertrand Gruss,Weicheng Lian

Following a period of disinflation during the 1990s and early 2000s, inflation in emerging markets has remained remarkably low and stable. Was this related to a global disinflation environment triggered by China's integration into world trade and the broader globalization in these economies, or to better domestic policies? In this paper, we review the inflation performance in a sample of 19 large emerging markets in the past couple of decades and quantify the impact of domestic and global factors in determining inflation. We document that the level, volatility, and persistence of inflation declined significantly, albeit not uniformly. Our results suggest that longer-term inflation expectations, linked to domestic factors, were the main determinant of inflation. External factors played a considerably smaller role. The results are a useful piece of evidence as emerging markets craft their monetary policies to navigate the future shift in global financial conditions.

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International Monetary Fund

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ISBN 10

1484384245

ISBN 13

9781484384244

Predictive Density Aggregation: A Model for Global GDP Growth

By: Francesca G Caselli,Mr.Francesco Grigoli,Romain Lafarguette,Changchun Wang

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Predictive Density Aggregation: A Model for Global GDP Growth

By: Francesca G Caselli,Mr.Francesco Grigoli,Romain Lafarguette,Changchun Wang

In this paper we propose a novel approach to obtain the predictive density of global GDP growth. It hinges upon a bottom-up probabilistic model that estimates and combines single countries’ predictive GDP growth densities, taking into account cross-country interdependencies. Speci?cally, we model non-parametrically the contemporaneous interdependencies across the United States, the euro area, and China via a conditional kernel density estimation of a joint distribution. Then, we characterize the potential ampli?cation e?ects stemming from other large economies in each region—also with kernel density estimations—and the reaction of all other economies with para-metric assumptions. Importantly, each economy’s predictive density also depends on a set of observable country-speci?c factors. Finally, the use of sampling techniques allows us to aggregate individual countries’ densities into a world aggregate while preserving the non-i.i.d. nature of the global GDP growth distribution. Out-of-sample metrics con?rm the accuracy of our approach.

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International Monetary Fund

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ISBN 10

1513545655

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9781513545653

Gains from Anchoring Inflation Expectations: Evidence from the Taper Tantrum Shock

By: Mr.Rudolfs Bems,Francesca G Caselli,Mr.Francesco Grigoli,Bertrand Gruss

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Gains from Anchoring Inflation Expectations: Evidence from the Taper Tantrum Shock

By: Mr.Rudolfs Bems,Francesca G Caselli,Mr.Francesco Grigoli,Bertrand Gruss

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1498306055

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9781498306058

On the Benefits of Repaying

By: Francesca G Caselli,Matilde Faralli,Paolo Manasse,Ugo Panizza

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On the Benefits of Repaying

By: Francesca G Caselli,Matilde Faralli,Paolo Manasse,Ugo Panizza

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1513596136

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9781513596136

Do Fiscal Rules Cause Better Fiscal Balances? A New Instrumental Variable Strategy

By: Francesca G Caselli,Julien Reynaud

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Do Fiscal Rules Cause Better Fiscal Balances? A New Instrumental Variable Strategy

By: Francesca G Caselli,Julien Reynaud

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ISBN 10

1498300863

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9781498300865

Is Inflation Domestic or Global? Evidence from Emerging Markets

By: Mr.Rudolfs Bems,Francesca G Caselli,Francesco Grigoli,Bertrand Gruss,Weicheng Lian

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Is Inflation Domestic or Global? Evidence from Emerging Markets

By: Mr.Rudolfs Bems,Francesca G Caselli,Francesco Grigoli,Bertrand Gruss,Weicheng Lian

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International Monetary Fund

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1484384245

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9781484384244

Predictive Density Aggregation: A Model for Global GDP Growth

By: Francesca G Caselli,Mr.Francesco Grigoli,Romain Lafarguette,Changchun Wang

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Predictive Density Aggregation: A Model for Global GDP Growth

By: Francesca G Caselli,Mr.Francesco Grigoli,Romain Lafarguette,Changchun Wang

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International Monetary Fund

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1513545655

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9781513545653

The Return to Fiscal Rules

By: Francesca Caselli,Mr. Hamid R Davoodi,Carlos Goncalves,Mr. Gee Hee Hong,Andresa Lagerborg,Mr. Paulo A Medas,Anh D. M. Nguyen,Jiae Yoo

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The Return to Fiscal Rules

By: Francesca Caselli,Mr. Hamid R Davoodi,Carlos Goncalves,Mr. Gee Hee Hong,Andresa Lagerborg,Mr. Paulo A Medas,Anh D. M. Nguyen,Jiae Yoo

Governments face difficult policy trade-offs with record debt levels, tightening monetary policies, and urgent demands, including food and energy crises, the climate agenda, and population aging. Governments need to communicate fiscal plans to reduce debt sustainability risks and promote consistent macroeconomic policies. Many envisage a return to fiscal rules that had been suspended during the pandemic to strengthen credibility. This situation offers an opportunity to rethink fiscal rules and determine how governments can make fiscal policy more agile, including in responding to crises, without undermining fiscal sustainability. A risk-based medium-term fiscal framework that combines standards, rules, and strengthened institutions would strike a better balance between flexibility and credibility.

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ISBN 13

9798400219467

Bunching at 3 Percent: The Maastricht Fiscal Criterion and Government Deficits

By: Francesca G Caselli,Mr.Philippe Wingender

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Bunching at 3 Percent: The Maastricht Fiscal Criterion and Government Deficits

By: Francesca G Caselli,Mr.Philippe Wingender

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1484372999

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9781484372999

Expectations' Anchoring and Inflation Persistence

By: Mr.Rudolfs Bems,Francesca G Caselli,Francesco Grigoli,Bertrand Gruss,Weicheng Lian

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Expectations' Anchoring and Inflation Persistence

By: Mr.Rudolfs Bems,Francesca G Caselli,Francesco Grigoli,Bertrand Gruss,Weicheng Lian

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International Monetary Fund

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ISBN 10

1484388844

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9781484388846

Did the Exchange Rate Floor Prevent Deflation in the Czech Republic?

By: Francesca G Caselli

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Did the Exchange Rate Floor Prevent Deflation in the Czech Republic?

By: Francesca G Caselli

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International Monetary Fund

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1484320360

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9781484320365

Mobility under the COVID-19 Pandemic: Asymmetric Effects across Gender and Age

By: Francesca G Caselli,Mr.Francesco Grigoli,Mr.Damiano Sandri,Mr.Antonio Spilimbergo

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Mobility under the COVID-19 Pandemic: Asymmetric Effects across Gender and Age

By: Francesca G Caselli,Mr.Francesco Grigoli,Mr.Damiano Sandri,Mr.Antonio Spilimbergo

Lockdowns and voluntary social distancing led to significant reduction in people’s mobility. Yet, there is scant evidence on the heterogeneous effects across segments of the population. Using unique mobility indicators based on anonymized and aggregate data provided by Vodafone for Italy, Portugal, and Spain, we find that lockdowns had a larger impact on the mobility of women and younger cohorts. Younger people also experienced a sharper drop in mobility in response to rising COVID-19 infections. Our findings, which are consistent across estimation methods and robust to a variety of tests, warn about a possible widening of gender and inter-generational inequality and provide important inputs for the formulation of targeted policies.

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INTERNATIONAL MONETARY FUND

Published Date

ISBN 10

1513563963

ISBN 13

9781513563961

Individual Treatment Effects of Budget Balance Rules

By: Francesca G Caselli,Daniel Stoehlker,Mr.Philippe Wingender

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Individual Treatment Effects of Budget Balance Rules

By: Francesca G Caselli,Daniel Stoehlker,Mr.Philippe Wingender

This paper investigates the heterogenous effects of budget balance rules on fiscal policy in a large sample of countries. To derive country-specific treatment effects of fiscal rules and conduct inference, we use a Synthetic Difference-in-Differences Method. Our results indicate that countries with a budget balance rule improve their fiscal balance on average by around 3 percent after its introduction. However, our results also illustrate the importance of going beyond the average treatment effect, as it masks significant heterogeneity in the country-specific impact of the rule. We find that countries that would have had large deficits in the absence of the fiscal rule exhibit positive treatment effects, thus reducing their budget deficits. On the other hand, countries with budget surpluses respond to fiscal rules by reducing their budget surplus and moving closer to the numerical target of the rule. Our results also suggest that rules’ design matters: a small overall number of fiscal rules, and the presence of a monitoring process outside the government, especially at the supra-national level, improve significantly the effectiveness of the rules.

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INTERNATIONAL MONETARY FUND

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ISBN 10

1513563858

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9781513563855

Protecting Lives and Livelihoods with Early and Tight Lockdowns

By: Francesca G Caselli,Mr.Francesco Grigoli,Weicheng Lian,Mr.Damiano Sandri

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Protecting Lives and Livelihoods with Early and Tight Lockdowns

By: Francesca G Caselli,Mr.Francesco Grigoli,Weicheng Lian,Mr.Damiano Sandri

Using high-frequency proxies for economic activity over a large sample of countries, we show that the economic crisis during the first seven months of the COVID-19 pandemic was only partly due to government lockdowns. Economic activity also contracted because of voluntary social distancing in response to higher infections. We also show that lockdowns can substantially reduce COVID-19 infections, especially if they are introduced early in a country's epidemic. Despite involving short-term economic costs, lockdowns may thus pave the way to a faster recovery by containing the spread of the virus and reducing voluntary social distancing. Finally, we document that lockdowns entail decreasing marginal economic costs but increasing marginal benefits in reducing infections. This suggests that tight short-lived lockdowns are preferable to mild prolonged measures.

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