nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒06‒07
six papers chosen by
Iulia Igescu
Global Insight, GmbH

  1. What is the linkage between real growth in the Euro area and global financial market conditions ? By Jean-Michel Sahut; Medhi Mili; Frédéric Teulon
  2. Growth, Trade, and Inequality By Gene Grossman; Elhanan Helpman
  3. Institutional quality, macroeconomic stabilization and economic growth: a case study of IMF programme countries By Javed, Omer
  4. Forecasting German Key Macroeconomic Variables Using Large Dataset Methods By Inske Pirschel; Maik Wolters
  5. Instruments, rules and household debt: the effects of fiscal policy By Javier Andrés; J.E. Boscá; Javier Ferri
  6. Long-Term Damage from the Great Recession in OECD Countries By Laurence M. Ball

  1. By: Jean-Michel Sahut; Medhi Mili; Frédéric Teulon
    Abstract: This paper deals with transition/transmission mechanisms through which world financial market conditions indicators affect real economic growth in the Euro area. The informational content of financial variables for predicting real economic growth is assessed, allowing for asymmetric responses to shocks. A nonlinear framework is developed based on a smooth transition model for which the effects of shocks can vary across business cycles when financial indicators modify both the endogenous and state variables. Global financial variables are shown to significantly affect real economic growth in the Euro area.
    Keywords: Euro area, economic growth, financial markets.
    Date: 2014–06–02
  2. By: Gene Grossman; Elhanan Helpman
  3. By: Javed, Omer
    Abstract: The current study is motivated by the overall lackluster performance of IMF programmes in recipient countries in terms of economic growth consequences, and tries to explore the relevance of institutional determinants (that have a positively significant role in improving institutional quality in IMF programme countries, in the first place) in enhancing real economic growth in IMF programme countries; as otherwise highlighted by New Institutional Economics literature for countries generally. Moreover, the study also investigates the impact of these determinants through the channel of macroeconomic stability. Based on a time period of 1980-2010 (coinciding with a duration of increasing number of IMF programmes), the results mainly validate that institutional determinants overall play a positive role in reducing macroeconomic instability, and through it, and also independently, enhance real economic growth.
    Keywords: Institutions; IMF programmes
    JEL: B52 F33
    Date: 2014–05–31
  4. By: Inske Pirschel; Maik Wolters
    Abstract: We study the forecasting performance of three alternative large scale approaches using a dataset for Germany that consists of 123 variables in quarterly frequency. These three approaches handle the dimensionality problem evoked by such a large dataset by aggregating information, yet on different levels. We consider different factor models, a large Bayesian vector autoregression and model averaging techniques, where aggregation takes place before, during and after the estimation of the different models, respectively. We find that overall the large Bayesian VAR and the Bayesian factor augmented VAR provide the most precise forecasts for a set of eleven core macroeconomic variables, including GDP growth and CPI inflation, and that the performance of these two models is relatively robust to model misspecification. However, our results also indicate that in many cases the gains in forecasting accuracy relative to a simple univariate autoregression are only moderate and none of the models would have been able to predict the Great Recession
    Keywords: Large Bayesian VAR, Model averaging, Factor models, Great Recession
    JEL: C53 E31 E32 E37 E47
    Date: 2014–05
  5. By: Javier Andrés (University of Valencia); J.E. Boscá (University of Valencia); Javier Ferri (University of Valencia)
    Abstract: In this paper, we look at the interplay between the level of household leverage in the economy and fiscal policy, the latter characterised by different combinations of instruments and rules. When the fiscal rule is defined on lump-sum transfers, government spending or consumption taxes, the impact multipliers of transitory fiscal shocks become substantially amplified in an environment of easy access to credit by impatient consumers, regardless of the primary instruments used. However, when the government reacts to debt deviations by raising distortionary taxes on income, labour or capital, the effects of household debt on the size of the impact output multipliers vanish or even reverse, no matter the primary fiscal instrument used. We also find that differences in multipliers between high and low indebtedness regimes belong basically to the short run, whereas the long-run multipliers associated with fiscal shocks are barely affected by the level of household debt in the economy. Finally, we find that fiscal shocks exert an unequal welfare effect on impatient and patient households that can even be of opposite signs. This points to non-negligible distributional impacts of alternative fiscal strategies, especially in economies with highly indebted households.
    Keywords: fiscal multipliers, household debt, distortionary taxes
    JEL: E24 E44 E62
    Date: 2014–10
  6. By: Laurence M. Ball
    Abstract: This paper estimates the long-term effects of the global recession of 2008-2009 on output in 23 countries. I measure these effects by comparing current estimates of potential output from the OECD and IMF to the path that potential was following in 2007, according to estimates at the time. The losses in potential output range from almost nothing in Australia and Switzerland to more than 30% in Greece, Hungary, and Ireland; the average loss, weighted by economy size, is 8.4%. Most countries have experienced strong hysteresis effects: shortfalls of actual output from pre-recession trends have reduced potential output almost one-for-one. In the hardest-hit economies, the current growth rate of potential is depressed, implying that the level of lost potential is growing over time.
    JEL: E32 E65 E66
    Date: 2014–05

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