nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2015‒08‒19
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Long-lasting consequences of the European crisis By Juan F. Jimeno
  2. Is There a Debt-threshold Effect on Output Growth? By Alexander Chudik, Kamiar Mohaddes, M. Hashem Pesaran, and Mehdi Raissi
  3. Regulation, trade and economic growth By Silberberger, Magdalena
  4. Growth enhancing effect of discretionary fiscal policy shocks: Keynesian, Weak Keynesian or Non-Keynesian? By Şen, Hüseyin; Kaya, Ayşe
  5. Reforming Fiscal Governance in the European Union By Michal Andrle; John C Bluedorn; Luc Eyraud; Tidiane Kinda; Petya Koeva Brooks; Gerd Schwartz; Anke Weber
  6. Oil, Volatility and Institutions:Cross-Country Evidence from Major Oil Producers By Amany El-Anshasy, Kamiar Mohaddes, and Jeffrey B. Nugent

  1. By: Juan F. Jimeno (Banco de España)
    Abstract: The Great Recession and the subsequent European crisis may have long-lasting effects on aggregate demand, aggregate supply and, hence, on macroeconomic performance over the medium and long run. Besides the fact that financial crises last longer and are succeeded by slower recoveries, and apart from the hysteresis effects that may operate after episodes of long-term unemployment, the combination of high (public and private) debt and low population and productivity growth may create significant constraints for monetary and fiscal policies. In this paper I develop an OLG model, one earlier used by Eggertsson and Mehrotra (2014) to rationalise the «secular stagnation hypothesis», to show how high debt and low population and productivity growth may condition the macroeconomic performance of some European countries over the medium and long run.
    Keywords: natural rate of interest, zero lower bound, population and productivity growth, inter-generational transfers, secular stagnation.
    JEL: E20 E43 E52 E66
    Date: 2015–08
  2. By: Alexander Chudik, Kamiar Mohaddes, M. Hashem Pesaran, and Mehdi Raissi
    Abstract: This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965-2010 period, we and no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers.
    Keywords: Panel tests of threshold effects, long-run relationships, estimation and inference, large dynamic heterogeneous panels, cross-section dependence, debt, and inflation.
    JEL: C23 E62 F34 H6
    Date: 2015–07–03
  3. By: Silberberger, Magdalena
    Abstract: The role of regulatory quality as one of the so-called deep determinants of growth has emerged as an important issue in economic research in the past 20 years. The positive or negative growth effects of a country´s regulatory framework are amplified by economic integration, which makes factors and producers more mobile and enables them to avoid burdensome regulation. Therefore, the two potential determinants to growth might be interlinked. So far there is very little empirical evidence on the impact of the regulatory framework in an integrated economy on growth. We deal with the most common problems in estimating growth equations by using internal instruments to identify a causal relationship between regulation and growth in the presence of international trade and find evidence that both regulation and trade have a significant positive influence on growth, with the effect of regulation being especially pronounced for countries that have worse regulatory quality and for middle-income countries.
    Keywords: institution,integration,regulation,openness,trade,growth
    JEL: F11 F43
    Date: 2015
  4. By: Şen, Hüseyin; Kaya, Ayşe
    Abstract: Using the extended version of the Blanchard and Perotti SVAR technique, this paper attempts to empirically predict the growth enhancing effect of discretionary fiscal policy shocks in both short- and long-run in Turkey over the period 2006:Q1-2015:Q1. Unlike previous studies which have mainly focused on fiscal policy instruments taxes and government spending at the aggregate level, this paper considers these instruments at the component level, and then attempts to analyze comparatively the effect of changes in each component on growth. The findings of the paper show that growth enhancing effect of discretionary fiscal policy shocks varies according to its components. However, discretionary fiscal policy shocks at the component level indicate mixed results. In the short-run, only the shocks to government spending have a Keynesian effect. In all other cases, discretionary fiscal policy shocks seem to capture a weak Keynesian and/or non-Keynesian effect in the case of Turkey.
    Keywords: Fiscal Policy, Economic Growth, Fiscal Stimulus Packages, Fiscal Multiplier, Keynesian Effect, Non-Keynesian Effect, Weak Keynesian Effect, SVAR Technique, Turkey.
    JEL: E27 E32 E6 E62 H2 H30
    Date: 2015–08–01
  5. By: Michal Andrle; John C Bluedorn; Luc Eyraud; Tidiane Kinda; Petya Koeva Brooks; Gerd Schwartz; Anke Weber
    Abstract: Successive reforms have brought many positive elements to the European Union’s fiscal framework. But they have also increased its complexity. The current system involves an intricate set of fiscal constraints, which hampers effective monitoring and public communication. Compliance has also been weak. This note discusses medium-term reform options to simplify the framework and improve compliance. Based on model simulations and practical considerations, it argues for moving to a two-pillar approach, with a single fiscal anchor (public debt-to-GDP) and a single operational target (an expenditure growth rule, possibly with an explicit debt correction mechanism) linked to the anchor.
    Keywords: European Economic and Monetary Union;Euro Area;Fiscal reforms;Fiscal policy;Fiscal rules;Fiscal Governance, European Economic, Monetary Union, debt, expenditure, public debt, budget, deficit, General, Intergovernmental Relations,
    Date: 2015–05–21
  6. By: Amany El-Anshasy, Kamiar Mohaddes, and Jeffrey B. Nugent
    Abstract: This paper examines the long-run effects of oil revenue and its volatility on economic growth as well as the role of institutions in this relationship. We collect annual and monthly data on a sample of 17 major oil producers over the period 1961. 2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our results suggest that (i) there is a significant negative effect of oil revenue volatility on output growth, (ii) higher growth rate of oil revenue significantly raises economic growth, and (iii) better fiscal policy (institutions) can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox, not the abundance of oil revenues as such.
    Keywords: Economic growth, natural resource curse, institutions, oil price volatility, oil income, macroeconomic policy
    JEL: C23 E02 F43 O13 Q32
    Date: 2015–07–06

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