nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2014‒08‒28
three papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. The Impact of Military Spending and Income Inequality on Economic Growth in Turkey, 1963-2008 By Töngür, Ünal; Elveren, Adem
  2. Fiscal Discipline for Growth: The Remedy or the Illusion in the Context of the Euro Area Crisis By Sinan Sönmez
  3. Monetary policy in times of financial stress By Alexandros Kontonikas; Charles Nolan; Zivile Zekaite

  1. By: Töngür, Ünal (Middle East Technical University/Economics, Ankara, Turkey); Elveren, Adem (Sutcu Imam University/Economics, Kahramanmaras, Turkey)
    Abstract: An extensive literature on the effect of military expenditures on economic growth yields conflicting results. A crucial issue that has not been investigated in this context is the possible effect of inequality. The impact of military expenditures on economic growth in Turkey has also received substantial attention. However, the majority of these studies are not constructed based on a structural model, but rather examine the causality between the variables in question. Considering these two shortcomings in the literature and the lack of consistent results, this study attempts to provide further evidence for the relationship between military expenditures and economic growth for the case of Turkey by considering income inequality within an augmented Solow growth model. Our findings for the 1963-2008 period show that while income inequality has a positive impact on economic growth, military expenditures have no significant effect.
    Keywords: Military expenditure, growth, income inequality, human capital, Solow growth model
    JEL: C22 H56 O11
    Date: 2013
  2. By: Sinan Sönmez (Atilim University)
    Abstract: Ever since the outbreak of the sovereign debt crisis, coordinating economic growth with fiscal sustainability has been on the European agenda. Fiscal consolidation calls for fiscal sustainability and austerity programs. But at present economic contraction/recession is the main problem, particularly in the Euro area. The problem has therefore transformed to one of combining and/or coordinating economic growth with fiscal sustainability. As fiscal discipline is a pivotal element of macroeconomic stability and fiscal sustainability, it is necessary to focus on fiscal rules and fiscal consolidation. Fiscal discipline in fact plays the main role in achieving fiscal and public debt sustainability. The approach that is currently in vogue is based on rules-based fiscal policy. It is in this context that rules-based fiscal policies continue to be implemented throughout the globe. The question to be answered, therefore, is whether economic growth and fiscal discipline can be reconciled? In other words, how does one engage the economy on a growth path in the context of fiscal austerity? In times of financial and economic crisis can fiscal rules and discipline be considered a universal prescription to overcome macroeconomic distortions and open the door to economic growth, or is this just an illusion? This paper investigates the problem of coordinating economic growth with fiscal sustainability and discipline.
    Keywords: Fiscal Discipline, Austerity, Fiscal Compact, Growth,, Euro Area Crisis
    JEL: H60 H62
    Date: 2013
  3. By: Alexandros Kontonikas; Charles Nolan; Zivile Zekaite
    Abstract: Some studies argue that the Fed reacts to financial market developments. Using data covering the period 1985:Q1 - 2008:Q4 and employing an augmented Taylor rule specification, we re-examine that conjecture. We find that evidence in favour of such a reaction is largely driven by the Fed’s behaviour during the 2007-2008 financial crisis.
    Keywords: Monetary Policy; Taylor Rule; Financial Crisis
    JEL: E52 E58 G01
    Date: 2014–07

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