Template-type: ReDIF-Paper 1.0 Author-Name: Marina Glushenkova Author-Name: Marios Zachariadis Title: How different are Monetary Unions to national economies according to prices? Classification-JEL: F4 Keywords: Law-of-one-price, border effect, economic integration Abstract: Not that different. Based on a unique dataset of semi-annual microeconomic price levels of goods and services across and within countries for 1990:1-2018:2, we show that time-series volatility and cross-sectional dispersion of law-of-one-price deviations is similar for pairs of cities within the same country and within the European Monetary Union. Our empirical analysis reveals that inflation and nominal exchange rate volatility/dispersion across locations have a positive impact on the volatility/dispersion across locations of law-of-one-price deviations across the globe. Furthermore, dispersion of law-of-one-price deviations across goods falls when the relative inflation rate between these locations rises, suggesting that the degree of price adjustment in individual product markets within a country has an international component shaped by international trade and arbitrage considerations. According to this measure of price integration, economies within the monetary union are half-way to the level of integration characterizing national economies. Moreover, monetary union membership reduces the volatility of law-of-one-price deviations, taking member countries more than half-way towards the volatility levels characterizing national economies. Length: 38 pages Creation-Date: 2020-03 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/01-20.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:01-2020 Template-type: ReDIF-Paper 1.0 Author-Name: Sofronis Clerides Author-Name: Pascal Courty Author-Name: Yupei Ma Title: Store expensiveness and consumer saving: Insights from a new decomposition of price dispersion Classification-JEL: D12; D14 Keywords: Price dispersion; grocery shopping; consumer saving; store expensiveness Abstract: We build on recent work analyzing consumers' ability to save by exploiting price dispersion in grocery stores. We show that store expensiveness is not universal but varies across consumers depending on the basket they consume. We incorporate this insight into a decomposition of price variance that is a refinement of Kaplan and Menzio's (2015) approach. Our analysis finds that the ability to choose the right product at the right store is much less important than Kaplan and Menzio found; rather, the ability to choose the cheapest stores for one's basket is the main source of variance in consumer savings. Length: 26 pages Creation-Date: 2020-03 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/02-20.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:02-2020 Template-type: ReDIF-Paper 1.0 Author-Name: Panayiota Lyssiotou Author-Name: Elena Savva Title: Who Pays Taxes on Basic Foodstuffs?: Evidence from Broadening the VAT Base Classification-JEL: H22; H32; D4 Keywords: commodity taxation; tax burden; tax incidence; pass through; tax harmonisation Abstract: We exploit the introduction of a 5% VAT on very essential food products (like fresh milk, coffee, yogurt, cheese) that occurred when an EU member state had to harmonise its VAT legislation with the EU VAT legislation. Preceding this reform, there was a removal of the zero VAT rate and imposition of 5% VAT rate on other food items that were considered less essential (juices, bottled water). We adopt a difference-in-difference approach as the price data support the common trends identifying assumption. On average, the tax was shifted fully to the consumer within the first month after the reform. However, there are differences even across seemingly related goods as some of them experienced overshifting of the pass through effect. The prices of goods in the control group did not change. These estimates are robust to alternative specifications and can be useful to other countries considering to broaden their VAT base by taxing basic groceries. Length: 32 pages Creation-Date: 2020-03 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/03-20.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:03-2020 Template-type: ReDIF-Paper 1.0 Author-Name: Elena Andreou Author-Name: Eric Ghysels Title: Predicting the VIX and the Volatility Risk Premium: The Role of Short-run Funding Spreads Volatility Factors Classification-JEL: C2; C5; G1 Keywords: Factor asset pricing models; Volatility Factors; ARCH filters Abstract: This paper presents an innovative approach to extract Volatility Factors which predict the VIX, the S&P500 Realized Volatility (RV) and the Variance Risk Premium (VRP). The approach is innovative along two different dimensions, namely: (1) we extract Volatility Factors from panels of filtered volatilities - in particular large panels of univariate ARCH-type models and propose methods to estimate common Volatility Factors in the presence of estimation error and (2) we price equity volatility risk using factors which go beyond the equity class namely Volatility Factors extracted from panels of volatilities of short-run funding spreads. The role of these Volatility Factors is compared with the corresponding factors extracted from the panels of the above spreads as well as related factors proposed in the literature. Our monthly short-run funding spreads Volatility Factors provide both in- and out-of-sample predictive gains for forecasting the monthly VIX, RV as well as the equity premium, while the corresponding daily volatility factors via Mixed Data Sampling (MIDAS) models provide further improvements. Length: 47 pages Creation-Date: 2020-03 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/04-20.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:04-2020 Template-type: ReDIF-Paper 1.0 Author-Name: Sofronis Clerides Author-Name: Styliani-Iris Krokida Author-Name: Neophytos Lambertides Author-Name: Dimitris Tsouknidis Title: What matters for consumer sentiment? World oil price or retail gasoline price? Classification-JEL: G10; G11; G12; G14 Keywords: oil supply and demand shocks; gasoline prices; consumer sentiment; euro area. Abstract: This paper examines the impact of oil supply and demand shocks on gasoline prices and consumer sentiment in the Euro Area. Results reveal that aggregate consumer sentiment and its components deteriorate notably as a response to positive shocks to real gasoline prices. On the contrary, positive oil-specific demand shocks do not trigger a deterioration of consumer sentiment. In other words, consumer sentiment is affected primarily by unexpected changes in gasoline prices at the pump rather than unexpected changes in crude oil prices. The analysis is further refined to analyze the effects of these shocks to six subcomponents of consumer sentiment. Length: 21 pages Creation-Date: 2020-05 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/05-20.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:05-2020 Template-type: ReDIF-Paper 1.0 Author-Name: Miltos Makris Author-Name: Theodore Palivos Author-Name: Marios Zachariadis Title: Representative Democracy with or without Elections: An Economic Analysis Classification-JEL: D72; D82; H11 Keywords: Elections; sortition; political selection; policy decisions; imperfect information. Abstract: We compare the quality of policies set by a representative in the face of complexity/uncertainty under an electoral system where the representative is chosen out of the set of politicians versus a system where the policy-setter is randomly selected from the “demos”, that is, the subset of citizens willing to serve as representatives if selected by lot. We do so by recognizing that the differences between the two systems affect the incentives of citizens to participate in the selection process in place. We find that for high enough returns from being the representative, drawing the decision-maker from the demos dominates elections because higher returns attract more able-for-the-job citizens while the probability of winning elections is decreasing in the number of politicians/candidates. Importantly, we also find that an increase in the complexity of policy issues makes it more likely that drawing the representative from the demos dominates elections since it reduces the probability of being selected under elections and thereby the incentives of more able-for-the-job citizens to become politicians. Calibrating our model we show that selection by lot is more likely to dominate elections in terms of the quality of policy decisions in countries with high income inequality as compared to those with low inequality. Length: 31 pages Creation-Date: 2020-06 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/06-20.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:06-2020 Template-type: ReDIF-Paper 1.0 Author-Name: Andri Chassamboulli Author-Name: Xiangbo Liu Title: Immigration, Legal Status and Fiscal Impact Classification-JEL: J61; J64; E20; F22 Keywords: Immigration, Search Frictions, Fiscal Impact, Welfare, Job creation, Immigration Policies Abstract: How do legal and illegal immigrants affect the fiscal balance and welfare of natives in the host country? To answer this question we develop a general equilibrium model with search frictions in the labor market that accounts for both the direct net contribution of immigrants to the fiscal balance and their indirect fiscal effects through their labor market impact. We calibrate the model to the US economy and find that legal immigrants increase native welfare, mainly due to their positive direct net contribution to the fiscal balance. On the other hand, illegal immigrants' positive welfare impact stems mainly from their positive effect on job creation, which helps improve the fiscal balance, but also increases income to natives and in turn consumption. A legalization program leads to a fiscal gain and increases native welfare and it is more beneficial to the host country's citizens than a purely restrictive immigration policy that reduces the illegal immigrant population. Length: 83 pages Creation-Date: 2020-06 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/07-20.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:07-2020 Template-type: ReDIF-Paper 1.0 Author-Name: Ruzica Savcic Author-Name: Dimitrios Xefteris Title: Apostolic Voting Classification-JEL: D72 Keywords: Apostolic Voting, Hotelling-Downs model, manipulation, lotteries, unique equilibrium Abstract: We study electoral competition under the, so-called, Apostolic voting rule (AVR) in the framework of the Hotelling-Downs model (Osborne, 1993). The AVR is a two-stage election procedure composed of a voting stage and a lottery stage: the voters vote for the candidate they like best, and each of the two most-voted candidates is elected with even probability. Under standard assumptions regarding the voters' preferences, we show that the AVR leads to a unique -up to permutations of the players' identities- equilibrium: only two candidates enter in the electoral race and they choose distinct policy platforms. This is the first rule which is proved to support an essentially unique equilibrium in this popular model. Our analysis highlights that as long as candidates do not compete for a single first place (as in standard plurality or runoff elections), but for a number of them (as under the AVR), strategic incentives alter dramatically and lead to stable and predictable configurations. Length: 24 pages Creation-Date: 2020-08 File-URL: http://papers.econ.ucy.ac.cy/RePEc/papers/08-20.pdf File-Format: Application/pdf Handle: RePEc:ucy:cypeua:08-2020