nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒02‒08
five papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. Revisiting the nexus between currency misalignments and growth in the CFA Zone By Carl Grekou
  2. Income growth and happiness: Reassessment of the Easterlin Paradox By Beja Jr., Edsel
  3. Testing the Bhaduri-Marglin Model with OECD Panel Data By Jochen Hartwig
  4. Uncovering the Relationship between Real Interest Rates and Economic Growth By Bruce E. Hansen; Ananth Seshadri
  5. Growth Policies and Macroeconomic Stability By Douglas Sutherland; Peter Hoeller

  1. By: Carl Grekou
    Abstract: In this paper, we revisit the link between currency misalignments and economic growth by taking into account the foreign currency-denominated debt dynamics (except French Franc and euro) for the CFA zone countries over the period 1985-2011. Relying on a BEER approach and using panel cointegration techniques, we first derive currency misalignments. We then estimate a panel smooth transition growth equation that allows us to observe nonlinear impacts of misalignments on both economic growth and foreign currency-denominated debt dynamics. We find that the nonlinear impact of currency misalignments on growth through the competitiveness channel is mitigated by the foreign currency-denominated debt dynamics through a valuation effect.
    Keywords: Currency misalignments, CFA zone, debt, economic growth, panel smooth transition regression
    JEL: C33 E42 F3 F43
    Date: 2014
  2. By: Beja Jr., Edsel
    Abstract: This paper presents evidence of a positive but very small long run relationship between income growth and happiness, evidence that can disprove the Easterlin Paradox. However, the paper argues that there is actually reason to sustain the paradox because it finds the magnitude of the estimated relationship too small to suggest that income growth has substantial consequence in improving happiness over the long-term. Certainly, the evidence suggests that happiness is more than about raising incomes. This paper argues that a rejection of the paradox is acceptable if and only if the empirical findings indicate economic significance.
    Keywords: Easterlin Paradox; income growth; happiness; dynamics
    JEL: A20 C53 I30 O40
    Date: 2014–02–01
  3. By: Jochen Hartwig (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: The Bhaduri-Marglin model is a post-Kaleckian model that allows for studying the impact of functional income distribution on the growth in demand. Over recent years, a number of empirical studies based on this model have aimed at determining whether a redistribution towards profits harms or fosters demand growth. The focus so far has been on a very limited number of countries. This paper is the first to test the Bhaduri-Marglin model with panel data. It finds that demand growth is reduced by a redistribution towards profits in the average OECD country. Productivity growth is also impaired.
    Keywords: Distribution, demand growth, productivity growth, Bhaduri-Marglin model, OECD panel data
    JEL: C23 E12 E20 O30 O40
    Date: 2014–01
  4. By: Bruce E. Hansen (University of Wisconsin-Madison); Ananth Seshadri (University of Wisconsin-Madison)
    Abstract: We analyze long-span data on real interest rates and productivity growth with the focus on estimating their long-run correlation. The evidence points to a moderately negative correlation, meaning that real interest rate is mildly countercyclical, although the estimates are not precise. Our best estimate of the long-run correlation is -0.20. The implications for long-term projections are as follows. A negative correlation implies that long-run costs due to a period of low interest rates will tend to be slightly offset by a period of high productivity growth. Conversely, long-run benefits during a period of high interest rates will be offset by low productivity growth. This implication is consistent with the question raised in the Project Solicitation concerning why the trust fund stochastic simulations tend to show less long-run variability than do the alternative assumption projections. We also examine the implications for the variability of long-term projections of trust fund accumulation. As expected, we find that a negative correlation reduces the variability in the stochastic intervals. However, our simplified calculations suggest that the effect is modest.
    Date: 2014–02
  5. By: Douglas Sutherland; Peter Hoeller
    Abstract: Policy reforms aimed at boosting long-run growth often have side effects – positive or negative – on an economy’s vulnerability to shocks and their propagation. Macroeconomic shocks as severe and protracted as those since 2007 warrant a reconsideration of the role growth-promoting policies play in shaping the vulnerability and resilience of an economy to macroeconomic shocks. Against this background, this paper looks at a vast array of policy recommendations by the OECD that promote longterm growth – contained in Going for Growth and the Economic Outlook – and attempts to establish whether they underpin macroeconomic stability or whether there is a trade-off. Les réformes visant à stimuler la croissance à long terme ont souvent des effets secondaires – positifs ou négatifs – sur la vulnérabilité d’une économie face à des chocs et à leur propagation. Des chocs macroéconomiques aussi graves et prolongés que ceux observés depuis 2007 justifient un réexamen de la contribution des politiques de promotion de la croissance à la vulnérabilité et à la résilience d’une économie face à de telles perturbations. Dans cette optique, le présent document passe en revue un large éventail de recommandations d’action formulées par l’OCDE pour encourager la croissance à long terme – qui figurent dans Objectif croissance et les Perspectives économiques – et cherche à déterminer si les actions recommandées favorisent la stabilité macroéconomique ou si des arbitrages s’imposent.
    Keywords: business cycles, volatility, economic policy, croissance, cycles d’activité, politique économique, volatilité
    JEL: E32 E52 E62 O40
    Date: 2014–02–06

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