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Are Bunds special? This paper estimates the “Bund premium” as the difference in convenience yields between other sovereign safe assets and German government bonds adjusted for sovereign credit risk, liquidity and swap market frictions. A higher premium suggests less substitutability of sovereign bonds. We document a rise in the “Bund premium” in the post-crisis period. We show that there is a negative relationship of the premium with the relative supply of German sovereign bonds, which is more pronounced for higher maturities and when risk aversion proxied by bond market volatility is high. Going forward, we expect German government debt supply to remain scarce, with important implications for the ECB’s monetary policy strategy.

Banks and Banking --- Financial Risk Management --- Investments: Bonds --- Interest Rates: Determination, Term Structure, and Effects --- International Finance: General --- International Financial Markets --- General Financial Markets: General (includes Measurement and Data) --- Financial Crises --- Investment & securities --- Finance --- Economic & financial crises & disasters --- Sovereign bonds --- Bonds --- Bond yields --- Yield curve --- Financial crises --- Financial institutions --- Financial services --- Interest rates --- United States

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The IMF’s Macroeconomic Model for the Energy Transition (GMMET) is applied to assess the climate-related measures in the U.S. 2022 Inflation Reduction Act (IRA). Explicitly accouting for corporate income tax funding and assuming no permitting delays for energy-related investment, the measures are expected to cut annual greenhouse gas emissions by 710 MMT by 2030, predominantly driven by more electricity generation from renewables combined with a rising share of electric vehicles. Aggregate output and inflation are not impacted significantly, while the fiscal costs amount to about $700 billion through 2030 (another $120 billion of fixed grants and loans are not modelled). In the presence of investment delays from permitting, emission cuts would be reduced by about a third. We also show that the IRA leaves room for sizable additional emission abatement at very low costs; by targeting electricity generation from coal and methane emissions from oil and gas industries.

Alternative Energy Sources --- Climate change --- Climate --- Commodities --- Currency crises --- Economic & financial crises & disasters --- Economics of specific sectors --- Economics --- Economics: General --- Electric Utilities --- Electric utilities --- Electricity --- Energy and the Macroeconomy --- Energy --- Environment --- Environmental Conservation and Protection --- Environmental management --- Fiscal Policy --- Global Warming --- Greenhouse gas emissions --- Greenhouse gases --- Income tax --- Informal sector --- International Policy Coordination and Transmission --- Investment & securities --- Investments: Energy --- Macroeconomics --- Natural Disasters and Their Management --- Natural Resources --- Natural resources --- Non-renewable resources --- Nonrenewable Resources and Conservation: General --- Personal Finance -Taxation --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Prices, Business Fluctuations, and Cycles: Forecasting and Simulation --- Public finance & taxation --- Renewable energy sources --- Renewable energy --- Tax allowances --- Taxes

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Understanding Euro Area Inflation Dynamics: Why So Low for So Long?.

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We quantify cross-border effects of the recent climate mitigation policies introduced in Canada and the U.S., using the global general equilibrium model IMF-ENV. Notably, with the substantial emission reductions from Canada’s carbon tax-led mitigation policies and the U.S.’ Inflation Reduction Act, these two countries would bridge two-thirds of the gap toward their Nationally Determined Contribution (NDC) goals. While the broadly divergent policies are believed to elicit competitiveness concerns, we find the aggregate cross-border effects within North America to be very limited and restricted to the energy intensive and trade exposed industries. Potential carbon leakages are also found to be negligible. A more meaningful difference triggered by policy heterogeneity is rather domestic, especially with U.S. subsidies increasing energy output while the Canada model with a carbon tax would marginally decrease it. This analysis is complemented by a stylized model illustrating how such divergence can affect the terms of trade, but also how these effects can be countered by exchange rate flexibility, border adjustments or domestic taxation.

Carbon tax --- Climate policy --- Climate --- Commodities --- Currency crises --- Economic & financial crises & disasters --- Economics of specific sectors --- Economics --- Economics: General --- Electric Utilities --- Electric utilities --- Electricity --- Emissions trading --- Energy and the Macroeconomy --- Energy: Government Policy --- Environment --- Environmental Economics --- Environmental economics --- Environmental Economics: Government Policy --- Environmental impact charges --- Environmental policy & protocols --- Environmental Policy --- Environmental policy --- Environmental Taxes and Subsidies --- Financial Markets and the Macroeconomy --- Global Warming --- Informal sector --- International finance --- Investment & securities --- Investments: Energy --- Macroeconomics --- Mathematical Methods and Programming: General --- Natural Disasters and Their Management --- Public finance & taxation --- Redistributive Effects --- Taxation and Subsidies: Externalities --- Taxation --- Taxation, Subsidies, and Revenue: General --- Taxes --- Trade and Environment