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Submitted Papers

Quantifying the Economic Impacts of COVID-19 Policy Responses on Canada’s Provinces In (Almost) Real Time

Canadian Journal of Economics (invited to revise and resubmit)

We develop a methodology to track and quantify the economic impacts of lock-down and re-opening policies by Canadian provinces in response to the COVID-19 pandemic, using data that is available with a relatively short time-lag. To do so, we adapt, calibrate and implement a dynamic, seasonally-adjusted, input-output model with sup- ply constraints. Our framework allows us to quantify potential scenarios for the impacts of lock-down and reopening which allow for dynamic complementarities between indus- tries, seasonal fluctuations, and changes in the composition of demand. Taking account of the observed variation in re-opening strategies across provinces, we estimate the costs of the policy response in term of lost hours of employment and production.

Working Papers

Savings Groups: Model, Welfare, Interest Rate, and Design

Savings groups (SGs) are a low-cost way of providing access to financial services to the most marginalized in the developing world. We develop a model of SGs – a Bewley-Huggett-Aiyagari-type heterogenous agent model – that captures the main distortionary features of VSLA-type (Village Savings and Loan Association) SGs. Calibrating the model to SGs data from Uganda, we find that SGs provide consumption smoothing benefits equal to 1.38% of consumption (consumption equivalent variation; CEV) or US$2.76 (financial value; FV) per member per month relative to autarky, which easily justify the low implementation costs. The optimal interest rate on borrowing is found to differ significantly across measures of welfare, with the CEV peaking around -9.5% and the FV peaking around 4%. Alternative designs of SGs are considered. Loosening the cash-flow constraint by allowing members to repay their loans using their share-out equity increases the CEV to 1.76% and the FV to US$3.04. Finally, a continuous SG design that eliminates the share-out cycle and its associated distortions raises the CEV to 3.86% and the FV to US$6.75.

Contingent Convertible Bonds: Hedging, Credit Default Swaps, and Sensitivity to Subjective Market Opinions

In response to the Great Recession, contingent convertible bonds have been pitched as the only debt instrument providing fully loss-absorbing going-concern capital to financial institutions. Legitimized by Basel III, they have rapidly become the hallmark of financial stability. Detractors have however raised concerning points about hedging and price stability, including the so-called death spiral, which is a self-fulfilling collapse in the underlying stock price as a result of delta hedging. Those points call into question the validity of this new security as a stabilizing force to the financial system. Seeking to address those concerns, this research begins with a thorough review of the literature on the current market environment, the structure and design of contingent convertible bonds and the various methods developed to price this hybrid security. It then expands the scope of the current literature, proceeding with an analysis of the hedging dynamics, the introduction of credit default swaps, and the sensitivity of the price to shifts in market opinions. Overall, this research finds that while significant, the risks and repercussions of a death spiral have been overblown. The strong emphasis on this particular issue in the press overshadows many of their other concerning features, including the distorted market-clearing price that currently prevails, the counterparty risk that could arise from the creation of a market for credit default swaps, and their high sensitivity to subjective market opinions.

Work in Progress

Derivation of Average Effective Tax Exempt Proportions by Commodities using Weighted Low-Rank Matrix Approximation for Estimation of VAT Tax Expenditures Model in Developing Countries

Estimation of tax expenditures is crucial to provide policymakers with the tools necessary to perform tax policy analysis as well as to ensure governmental transparency and integrity. Their estimation and reporting is common practice in OECD countries, and is growing in the developing world. The availability of the necessary high quality data is the most significant hurdle preventing estimation. The complex dynamics of value-added taxes (VAT) makes its tax expenditures particularly challenging to estimate with the available data. This paper applies the weighted low-rank matrix approximation methods to derive a vector of tax exempt proportions for each commodities in the national accounts’ supply-use tables (SUTs) using the SUTs’ VAT slice of the use matrix. This method makes it possible to calibrate VAT tax expenditures model using national accounts data, which is more readily available.