nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒03‒23
six papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Japanization: Is it Endemic or Epidemic? By Takatoshi Ito
  2. Are monetary unions more synchronous than non-monetary unions? By Crowley, Patrick M.; Trombley, Christopher
  3. Institutional Governance, Education and Growth By Mohamed Jellal; Mohamed, Bouzahzah; Simplice Asongu
  4. A Review of Some Postwar Economic Growth Theories and Empirics By Accolley, Delali
  5. A real-time GDP data set for Switzerland By Severin Bernhard
  6. A novel ex-ante leading indicator for the EU industrial production By Donadelli, Michael; Paradiso, Antonio; Riedel, Max

  1. By: Takatoshi Ito
    Abstract: Japanization is defined as a combinations of the following economic conditions: (1) the actual growth rate is lower than the potential growth rate for an extended period; (2) the natural real interest rate is below zero and also below the actual real interest rate; (3) the nominal (policy) interest rate is zero; (4) deflation, i.e., negative inflation rate. As a summary measure for these conditions, the Japanization index, the sum of proxy for GDP gap, inflation rate and the nominal interest rate, is proposed. The growth rate, the inflation rate and the nominal and real interest rate has been declining since 1990. Since 2009, major advanced countries have shared conditions (1)-(3). Only Japan has experienced a prolonged period of (4) deflation. A closer examination of how Japan got into the Japanization state reveals that it is a combination of (a) a hard-landing of the 1990-92 bubble; (b) not dealing with non-performing loans problem promptly and decisively, resulting in a major banking crisis; (c) the absence of a soft landing after the banking crisis; (d) the lack of quantitative easing policies when deflation first occurred; (e) the absence of an inflation target; and (f) the absence of timely, large scale fiscal stimulus. The fact that Abenomics—a mix of aggressive monetary policy, combined with a 2% inflation target and fiscal stimulus—in lifting the economy out of deflation shows it is possible to prevent or cure Japanization.
    JEL: E43 E44 E52 E58 E61 E62 F31
    Date: 2016–02
  2. By: Crowley, Patrick M.; Trombley, Christopher
    Abstract: Within currency unions, the conventional wisdom is that there should be a high degree of macroeconomic synchronicity between the constituent parts of the union. But this conjecture has never been formally tested by comparing sample of monetary unions with a control sample of countries that do not belong to a monetary union. In this paper we take euro area data, US State macro data, Canadian provincial data and Australian state data — namely real Gross Domestic Product (GDP) growth, the GDP deflator growth and unemployment rate data — and use techniques relating to recurrence plots to measure the degree of synchronicity in dynamics over time using a dissimilarity measure. The results show that for the most part monetary unions are more synchronous than non-monetary unions, but that this is not always the case and particularly in the case of real GDP growth. Furthermore, Australia is by far the most synchronous monetary union in our sample.
    Keywords: business cycles, growth cycles, frequency domain, optimal currency area, macroeconomic synchronization, monetary policy, single currency
    JEL: C49 E32 F44
    Date: 2015–07–31
  3. By: Mohamed Jellal (Rabat, Morocco); Mohamed, Bouzahzah (Rabat, Morocco); Simplice Asongu (Yaoundé/Cameroon)
    Abstract: This study articulates the interaction between institutional governance, education and economic growth. Given the current pursuit of education policy reforms and knowledge economy around the world, it is of policy relevance to theoretically analyze the main mechanisms by which the macroeconomic impact of education on growth (and economic development) occurs. Our theoretical model demonstrates how incentives offered by the government affect human capital accumulation which ultimately engenders positive economic development externalities. We articulate two main channels through which education affects economic growth. The first channel highlights direct positive effect of educational quality on the incentive to accumulate human capital by individuals, which makes them more productive. The second channel appears in the explicit function of the economic growth rate. As a policy implication, we have shown that the growth rate depends on the rate of return on human capital or that this rate of return itself depends on the quality of governance, which further increases growth. As a result, institutional quality has a double dividend, which suggests considerable benefits to educational reforms.
    Keywords: Institutions, Human capital, Education, Growth
    JEL: H11 O15 O43
    Date: 2015–12
  4. By: Accolley, Delali
    Abstract: The evolution of growth theories from the 1956 seminal work of Solow and Swan to Aghion and Howitt’s 1992 Schumpeterian model is traced herein. How growth empirics helped improve some existing theories is also presented. As a matter of fact, the empirical evidence that countries were not converging as the Solow-Swan model predicted led to the development of endogenous growth theories pioneered by Romer (1986) and Lucas (1988). Thereafter, semi-endogenous growth models originated from the observation that growth rate across countries was not proportional to the size of skilled labor as endogenous growth theories predicted. I also present my own empirical assessment of some predictions from growth theories and find supporting evidence of (1) convergence of GDP across Canada and the countries of the West African Economic and Monetary Union and (2) a positive relationship between output and the accumulation of knowledge through R&D across Canada. I also find, in Canada, the evidence of a positive relationship between economic growth and skilled labor, as some model predicted.
    Keywords: Economic Growth, endogenous growth, exogenous growth, growth empirics
    JEL: N1 O4 O47
    Date: 2015–11–09
  5. By: Severin Bernhard
    Keywords: GDP revisions, national accounts, monetary policy
    JEL: C22 C82 E32 E37 E52
    Date: 2016
  6. By: Donadelli, Michael; Paradiso, Antonio; Riedel, Max
    Abstract: We build a novel leading indicator (LI) for the EU industrial production (IP). Differently from previous studies, the technique developed in this paper is able to produce an ex-ante LI that is immune to "overlapping information drawbacks". In addition, the set of variables composing the LI relies on a dynamic and systematic criterion. This ensures that the choice of the variables is not driven by subjective views. Our LI anticipates swings (including the 2007-2008 crisis) in the EU industrial production - on average - by 2 to 3 months. The predictive power improves if the indicator is revised every five or ten years. In a forward-looking framework, via a general-to-specific procedure, we also show that our LI represents the most informative variable in approaching expectations on the EU IP growth.
    Keywords: leading indicator,EU industrial production,Granger causality,turning points,forward-looking models
    JEL: E32 C22 C52
    Date: 2015

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