Abstract: This paper looks at the disruption in food supply chains due to COVID‐19 induced economic shutdown in India. We use a novel dataset from one of the largest online grocery retailers to look at the impact on product stockouts and prices. We find that product availability falls by 10 percent for vegetables, fruits, and edible oils, while there is a minimal impact on their prices. On the farm‐gate side, it is matched by a 20 percent fall in quantity arrivals of vegetables and fruits. We then show that supply chain disruption is the main driver behind this fall. We compute the distance to production zones from our retail centers and find that the fall in product availability and quantity arrivals is larger for items that are cultivated or manufactured farther from the final point of sale. Our results show that long‐distance food supply chains have been hit the hardest during the current pandemic with welfare consequences for urban consumers and farmers.
Abstract: COVID-19 pandemic has rattled the global economy and has required governments to undertake massive fiscal stimulus to prevent the economic fallout of social distancing policies. In this paper, we compare the fiscal response of governments from around the world and its main determinants. We find sovereign credit ratings as one of the most critical factors determining their choice. First, the countries with one level worse rating announced 0.3 percentage points lower fiscal stimulus (as a percentage of their GDP). Second, these countries also delayed their fiscal stimulus by an average of 1.7 days. We identify 22 most vulnerable countries, based on their rating and stringency, and find that a stimulus equal to 1 percent of their GDP adds up to USD 87 billion. In order to fight the pandemic, long term loans from multilateral institutions can help these stimulus starved economies.
Abstract: We provide causal evidence on the linkage between dollar liquidity and dollar invoicing exploiting an unanticipated shock to the dollar financing around the Taper Tantrum. Using the differential funding shock across countries, we test the impact of dollar liquidity on invoicing and imports by Indian firms using transaction-level data. We find that (i) firm-level dollar invoicing drops in response to dollar funding shock with the corresponding rise in Euro and producer currency pricing, (ii) local presence of foreign banks allows Indian firms to smooth-out the liquidity shock, and (iii) firms transfer liquidity from one market to another using their internal capital markets to smooth-out country-specific funding shocks. We document that firms unable to maintain the level of dollar invoicing are more likely to lose a trade connection.
Abstract: This paper studies the informational impact of inflation targeting (IT) on financial market activity and volatility in an emerging market context by using a unique, natural policy experiment. We evaluate the impact of a hard switch to IT by India in 2015 on the information transmitted to markets by central bank policy announcements. We find that central bank monetary policy significantly impacts bond market trading and yield volatility, largely reflecting new information provided by policy decisions. However, there is no significant change in the informational properties of monetary policy surprises after the switch to IT barring a modest increase in wait-and-watch behavior before monetary policy decision dates. Monetary policy announcements and surprises do not significantly impact equity return volatility before and after the switch to IT. Our results point to market perceptions of monetary policy being informative about future inflation, but not the future growth outlook and risks. To support this intuition, we provide evidence-based textual analysis of Reserve Bank of India (RBI) policy announcements, which shows an increase in focus on inflation but not growth after the adoption of IT.
Abstract: Using a recently implemented Price Deficiency Payments (PDP) policy in India known as the Bhavantar Bhugtan Yojana (BBY), we examine how such farm support policies affect farm-gate prices and quantity arrivals. We study two major crops covered under the scheme, Urad (Black-gram) and Soyabean. We find that Urad prices fell by 4 percent, and quantity arrivals increased by 42 percent during the BBY period. In contrast, we find no significant effect on Soyabean. We argue that the size of deficiency payments can explain this difference in market outcomes. Using bid-level crop auction data, we rule out collusion among intermediaries as a potential explanation for our results. Finally, we estimate the monetary losses incurred by the farmers and the government due to this policy.
Abstract: We develop an index of occupational vulnerability for India, based on the occupation’s feasibility of remote work and the underlying need for human proximity. We aggregate occupation-level scores to derive sector-level scores of vulnerability to COVID-19 induced lockdowns. We find that our vulnerability index relates to post-lockdown shifts in economic activity. We use payments received at the state-sector level from one of India’s largest payment gateways and find that a one-standard-deviation decrease in sectoral vulnerability decreases the fall in the count and value of payments by one-third. A similar change is captured in the posting activity of NIFTY-500 firms on Twitter. We find that firms in more vulnerable sectors tweet less, demonstrate less positive sentiment in their tweets, and tweet different content from the pre-lockdown period.
Abstract: This paper introduces the concept of diffusion of shocks in a macroeconomic network consisting of inter-sectoral production linkages. Using sectoral and firm level data, the paper documents two empirical facts. First, sectoral output do not react contemporaneously to shocks in input sectors (it only reacts with a lag). Second, different sectors take different time horizon to respond to shocks to their input sectors. I then incorporate these features in a model of production network to study the contribution of sectoral shocks to aggregate fluctuations. I show that if sectors have different reaction horizons it leads to diffusion of shocks through the network over time which prevents the inter-sectoral linkages to form the feedback loop structure essential to generate aggregate volatility. So, the impact of a given sectoral shock lingers over a longer time period (due to diffusion) but contributes less to the aggregate volatility in any given period. Finally, I use a factor model to estimate the contribution of aggregate vs idiosyncratic sectoral shocks to aggregate fluctuations in US industrial production (IP) data. I find that in the case of a diffusion adjusted network model the contribution of sectoral shocks to aggregate volatility is small and is of the same magnitude as in the case of statistical factor analysis.
Employment in a Network of Input-output Linkages (with Francois de Soyres and Miguel Z. Anton)
Abstract: What is the consequence of a technological improvement in one sector on employment in sectors located downstream in the supply-chain? On the one hand, if material and labor are gross substitutes in the production function, the price decrease for the former tends to reduce labor demand for the latter per unit produced. On the other hand, the upstream positive technological shock also increases the number of unit produced through a decrease in the marginal cost. The net effect on employment simply depends on the ratio between the elasticity of substitution in the production function and the price elasticity of demand. We estimate those parameters at the sector level using detailed French data and show that employment sensitivity of sectors following a decrease in their material input price are very heterogeneous. Consequences for forecasting the effect of an increase in machine efficiency are discussed.
Gains from Agricultural Market Integration: Role and Size of Intermediaries
Abstract: How does market structure and presence of intermediaries impact the cropping pattern and agricultural trade within a country? The difference between farm-gate and consumer prices points towards the presence of large margins charged by the intermediaries but it is difficult to isolate the effect of market structure from other phenomenon. This paper exploits a pro-competitive policy reform from India, which allowed free entry of intermediaries in the agricultural markets, to quantify the size of these margins. I develop a Ricardian style comparative advantage model of intra-national trade in agricultural crops, which embeds intermediaries and is suitable to study market structure change. The model gives a structural equation that allows me to estimate the change in intermediary margin due to this reform. I find that post reform the intermediary margin decreased by 16% for Groundnut, one of the major crops in this region. I then connect the model with rich micro datasets on farm productivity and land use to estimate relevant parameters to run counter-factual experiments which reveal that the reform increased average welfare by 1.3%.
Household Finance in Developing Countries: The Case of India (with Pawan Gopalakrishnan and S. K. Ritadhi)
Abstract: We use a novel panel data on Indian households to document the household asset portfolio choice along the extensive margin. While households hold high stocks of gold and real estate, a majority of them participate exclusively in financial assets on a regular basis. This dilutes the puzzle on why households in developing countries hold excessive physical assets. We show that a portfolio choice model, a la Grossman and Laroque (1990), where households face an adjustment cost to change their asset holdings, can explain the mismatch observed in the stocks and flows data. Using regional weather shocks as a source of exogenous variation to household incomes, we show that consecutive positive shocks increases household participation in physical assets while a single positive weather shock increases household participation in financial assets, suggesting that households use financial assets as a transitory asset class, thus providing a direct causal evidence for adjustment costs. Furthermore, we show that increasing access to formal financial institutions increases household participation in physical assets by reducing the adjustment costs.