|
on macroeconomics |
|
Issue of 2005‒02‒01
thirty papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Martin D.D. Evans |
| Abstract: | This paper describes a method for calculating daily real-time estimates of the current state of the U.S. economy. The estimates are computed from data on scheduled U.S. macroeconomic announcements using an econometric model that allows for variable reporting lags, temporal aggregation, and other complications in the data. The model can be applied to find real-time estimates of GDP, inflation, unemployment or any other macroeconomic variable of interest. In this paper I focus on the problem of estimating the current level of and growth rate in GDP. I construct daily real-time estimates of GDP that incorporate public information known on the day in question. The real-time estimates produced by the model are uniquely-suited to studying how perceived developments the macro economy are linked to asset prices over a wide range of frequencies. The estimates also provide, for the first time, daily time series that can be used in practical policy decisions. |
| JEL: | E3 C3 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11064&r=mac |
| By: | Fabio Canova; Evi Pappa |
| Abstract: | We study whether and how fiscal restrictions alter the business cycle features of macrovariables for a sample of 48 US states. We also examine the %u201Dtypical%u201D transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed. |
| JEL: | E3 E5 H7 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11065&r=mac |
| By: | Michael LeBlanc (Economic Research Service, U.S. Department of Agriculture); Menzie Chinn (University of Wisconsin, Madison) |
| Abstract: | We estimate the effects of oil price changes on inflation for the United States, United Kingdom, France, Germany, and Japan using an augmented Phillips curve framework. We supplement the traditional Phillips curve approach taking into account the growing body of evidence suggesting that oil prices may have asymmetric and nonlinear effects on output and that structural instabilities may exist in those relationships. Our statistical estimates suggest current oil price increases are likely to have only a modest effect on inflation in the U.S, Japan, and Europe. Oil price increases of as much as 10 percentage points will lead to direct inflationary increases of about 0.1-0.8 percentage points in the U.S. and the E.U. Inflation in Europe, traditionally thought to be more sensitive to oil prices than in the U.S., is unlikely to show any significant difference in sensitivity from that in the United States and in fact may be less in some countries. |
| Keywords: | inflation, Phillips curve, oil prices, exchange rates, |
| Date: | 2004–02–19 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucscec:1021&r=mac |
| By: | Paola Monperrus-Veroni (Observatoire Français des Conjonctures Économiques); Francesco Saraceno (Observatoire Français des Conjonctures Économiques) |
| Abstract: | This paper aims at providing a quantitative assessment of different proposals for reforming the Stability and Growth Pact by extending a counterfactual experiment performed in Eichengreen and Wyplosz (1998). Using estimated coefficients from a reduced form model, we simulate the path of the output gap for the largest Euro zone countries (France, Germany, Italy) after imposing limits to structural deficit according to different fiscal rules (structural deficit rules, golden rules and rules that incorporate the stock of debt). For each of these countries we can rank the different reform proposals in terms of output loss over the period considered. Our analysis has the merit of using a uniform method and hence allow a comparison across countries and across rules. The main results of the experiment, which emerge robustly, are (a), that the golden rule would be the most beneficial both using individual country's criteria and global criteria; and (b) that the status quo, the Maastricht rule, is less restrictive than many currently debated alternatives. |
| Keywords: | Stability Pact, Golden Rule, European Union, Institutional Reform, Fiscal Rules |
| JEL: | E62 E63 H62 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0501&r=mac |
| By: | Enisse Kharroubi |
| Abstract: | This paper documents a stylized fact on the aggregate wage structure of firms and proposes an explanation for this stylized fact based on the existence of capital market imperfections. We first provide empirical evidence that, every thing else equal, workers real compensation is more sensitive to economic fluctuations in economies where the variance of fluctuations is larger. Secondly we show that this can be accounted for in a framework where firms are confronted to imperfect capital markets. In this case, the wage insurance provided to workers can have a negative effect on the borrowing capacity of firms. Then with risk averse workers, a trade-off appears for firms between the cost of labor and the intensity of borrowing constraints. Finally in a macroeconomic model where the risk sharing agreement between firms and workers directly impacts the macroeconomic behavior of the economy, this model yields the observed positive correlation between real wages procyclicity and the volatility of economic fluctuations. |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:del:abcdef:2004-33&r=mac |
| By: | Radim Bohacek; Hugo Rodriguez Mendizabal |
| Abstract: | This paper analyzes the propagation of monetary policy shocks through the creation of credit in an economy. Models of the monetary transmission mechanism typically feature responses which last for a few quarters contrary to what the empirical evidence suggests. To propagate the impact of monetary shocks over time, these models introduce adjustment costs by which agents find it optimal to change their decisions slowly. This paper presents another explanation that does not rely on any sort of adjustment costs or stickiness. In our economy, agents own assets and make occupational choices. Banks intermediate between agents demanding and supplying assets. Our interpretation is based on the way banks create credit and how the monetary authority affects the process of financial intermediation through its monetary policy. As the central bank lowers the interest rate by buying government bonds in exchange for reserves, high productive entrepreneurs are able to borrow more resources from low productivity agents. We show that this movement of capital among agents sets in motion a response of the economy that resembles an expansionary phase of the cycle. |
| Keywords: | Credit, Monetary policy shock, Heterogeneous agents |
| JEL: | E50 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp244&r=mac |
| By: | Westerlund, Joakim (Department of Economics, Lund University) |
| Abstract: | Recent empirical studies suggest that the Fisher hypothesis, stating that inflation and nominal interest rates should cointegrate with a unit parameter on inflation, does not hold, a finding at odds with many theoretical models. This paper argues that these results can be explained in part by the low power inherent in univariate cointegration tests and that the use of panel data should generate more powerful tests. In doing so, we propose two new panel cointegration tests, which are shown by simulation to be more powerful than other existing tests. Applying these tests to a panel of monthly data covering the period 1980:1 to 1999:12 on 14 OECD countries, we find evidence supportive of the Fisher hypothesis. |
| Keywords: | Fisher Hypothesis; Residual-Based Panel Cointegration Test; Monte Carlo Simulation. |
| JEL: | C12 C15 C32 C33 E40 |
| Date: | 2005–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2005_010&r=mac |
| By: | Oviedo, P. Marcelo |
| Abstract: | By simplifying the computational tasks and by providing step-by-step explanations of the procedures required to study a linear dynamic rational expectations (LDRE) model, this paper and the accompanying ``LDRE Toolbox" of Matalb functions guide a researcher with almost no experience in computational work to resolve and study his own model. After coding the model following specific guidelines, a single function call is all that is needed to log-linearize the model; simulate it under exogenous sequences of shocks; compute sample and population moment conditions; and obtain impulse-response functions. Three classical models in the Real-Business-Cycles literature are solved and studied throughout to give detailed examples of the steps involved in solving and studying LDRE models using the LDRE Toolbox. Namely, the economies in Brock and Mirman (Optimal Growth and Uncertainty: the Discounted Case, Journal of Economic Theory, 4(3): 479-513; 1972); King, Plosser, and Rebelo (Production, Growth and Business Cycles I: The Basic Neoclassical Model, Journal of Monetary Economics 21: 195-232; 1988); and Mendoza (Real Business Cycles in a Small Open Economy, American Economic Review 81(4): 797-818; 1991). |
| JEL: | C6 E3 E4 |
| Date: | 2005–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12235&r=mac |
| By: | Jose Noguera |
| Abstract: | This paper sets up a model to inquire into whether the rise and fall in barter transactions in Russia and other CIS countries during the 1990’s was an involuntary decision resulting from credit rationing or the consequence of firms’ optimal choice. We find that the transmission mechanism of the government policy contains the necessary information to answer the question. An inquiry into the empirics of the model is then conducted using data from Russia. |
| Keywords: | Barter, Interest rate, Credit rationing, Optimal choice |
| JEL: | E0 E4 E5 F41 P24 P26 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp243&r=mac |
| By: | Nirvikar Singh (University of California, Santa Cruz); T. Srinivasan (Economic Growth Center, Yale University) |
| Abstract: | This paper discusses some puzzles in the contemporary macroeconomic scene in India, from the perspective of public finance and economic development. These include a fiscal deficit higher than it was during the 1991 crisis, but without a large current account deficit or rise in inflation or interest rates, a rising inflow of external capital, accompanied by the RBI's sterilizing these inflows and accumulating large reserves, even in the face of low inflation. We offer a critique of some previous analyses, and some models that are suggestive of how real and monetary factors might be integrated in providing a firmer grounding for the policy debates current in India. |
| Keywords: | foreign capital, sterilization, absorption, crowding out, inflation, growth, |
| Date: | 2004–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:scciec:1038&r=mac |
| By: | Alexandre MINDA (LEREPS-GRES) |
| Abstract: | This paper will analyse the debate about official dollarization in Latin America. Because of the opportunity cost of dollarization, replacing a national currency by a foreign currency is a solution of last resort to the financial instability of emerging economies. To clarify the discussion, a taxonomy of dollarization regimes is drawn up in order to make an inventory of officially dollarized countries, territories and dependencies. The foundations for adopting complete dollarization are analysed through three elements : an account of the limits to corner solutions, the identification of the economic contexts which are favourable to the adoption of foreign currencies and the reasons behind the legitimacy crisis of national currencies. To determine what is at stake in such decisions, cost advantage analysis mentions, first of all, the expected benefits highlighted by the advocates of complete dollarization. A detailed study of its potential impact will then allow us to evaluate the induced costs of the disappearance of national currencies. Finally, by looking at emerging countries that have adopted this exchange regime, the limits of adopting such a solution are underlined, particularly by the fact that the disappearance of national currencies implies an abandonment of monetary sovereignty and a loss of a powerful symbol of national assertion and identity. |
| Keywords: | Dollarization, Latin America, exchange rate regime, monetary sovereignty |
| JEL: | E E F F |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:grs:wpegrs:2005-02&r=mac |
| By: | Michelle Hanlon; Terry Shevlin |
| Abstract: | This paper discusses the issues surrounding the proposals to conform financial accounting income and taxable income. The two incomes diverged in the late 1990s with financial accounting income becoming increasingly greater than taxable income through the year 2000. While the cause of this divergence is not known for certain, many suspect that it is the result of earnings management for financial accounting and/or the tax sheltering of corporate income. Our paper outlines the potential costs and benefits of one of the proposed "fixes" to the divergence: the conforming of the two incomes into one measure. We review relevant research that sheds light on the issues surrounding conformity both in the U.S. as well as evidence from other countries that have more closely aligned book and taxable incomes. The extant empirical literature reveals that it is unlikely that conforming the incomes will reduce the amount of tax sheltering by corporations and that having only one measure of income will result in a loss of information to the capital markets. |
| JEL: | K34 M41 E62 G12 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11067&r=mac |
| By: | James J. Choi; David Laibson; Brigitte Madrian; Andrew Metrick |
| Abstract: | Defaults can have a dramatic influence on consumer decisions. We identify an overlooked but practical alternative to defaults: requiring individuals to make an explicit choice for themselves. We study such "active decisions" in the context of 401(k) saving. We find that compelling new hires to make active decisions about 401(k) enrollment raises the initial fraction that enroll by 28 percentage points relative to a standard opt-in enrollment procedure, producing a savings distribution three months after hire that would take three years to achieve under standard enrollment. We also present a model of 401(k) enrollment and derive conditions under which the optimal enrollment regime is automatic enrollment (i.e., default enrollment), standard enrollment (i.e., default non-enrollment), or active decisions (i.e., no default and compulsory choice). Active decisions are optimal when consumers have a strong propensity to procrastinate and savings preferences are highly hetergeneous. Naive beliefs about future time-inconsistency strengthen the normative appeal of the active decision enrollment regime. |
| JEL: | D0 E21 G23 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11074&r=mac |
| By: | Rob Alessie; Agar Brugiavini; Guglielmo Weber |
| Abstract: | The paper deals with the e.ects of cohabitation of grown children with their parents on household saving, using data from Italy and the Netherlands. It presents a two-period gametheoretical model where the child has to decide whether to move out of the parental home. This decision is affected by transaction costs, the child%u2019s preference for independence, and by the consumption loss induced by the move (consumption is a public good while the child lives in the parental home). We show that the child%u2019s income share affects the household saving decision, in contrast with predictions of the standard unitary model of household decision making. Empirical results from both countries are supportive of the key model predictions. We find strong positive effects of the child income share on the saving rate in Italy, where we calculate saving as the difference between disposable income and consumption but cannot distinguish children who will leave from those who will stay. We also find some significant effects of the child income share on household saving rate in the Netherlands, where saving is computed as the change over time in financial wealth. In the Dutch data we distinguish between children who stay and children who leave. The effect of the child%u2019s income share is significantly negative for those who stay, positive for those who leave. |
| JEL: | E2 D1 D9 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11079&r=mac |
| By: | Allan Drazen; Marcela Eslava |
| Abstract: | We present a model of the Political Budget Cycle in which voters and politicians have preferences for different types of government spending. Incumbents try to influence voters by changing the composition of government spending, rather than overall spending or revenues. Rational voters may support an incumbent who targets them with spending before the election even though such spending may be due to opportunistic manipulation, because it can also reflect sincere preference of the incumbent for types of spending voters favor. Classifying expenditures into those which are targeted to voters and those that are not, we provide evidence supporting our model in data on local public finances for all Colombian municipalities. Our findings indicate both a pre-electoral increase in targeted expenditures, combined with a contraction of other types of expenditure, and a voter response to targeting. |
| JEL: | D72 E62 D78 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11085&r=mac |
| By: | Mats Persson; Torsten Persson; Lars E.O. Svensson |
| Abstract: | This paper demonstrates how time consistency of the Ramsey policy - the optimal fiscal and monetary policy under commitment - can be achieved. Each government should leave its successor with a unique maturity structure for the nominal and indexed debt, such that the marginal benefit of a surprise inflation exactly balances the marginal cost. Unlike in earlier papers on the topic, the result holds for quite a general Ramsey policy, including timevarying polices with positive inflation and positive nominal interest rates. We compare our results with those in Persson, Persson, and Svensson (1987), Calvo and Obstfeld (1990), and Alvarez, Kehoe, and Neumeyer (2004). |
| JEL: | E31 E52 H21 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11088&r=mac |
| By: | Francis X. Diebold; Monika Piazzesi; Glenn Rudebusch |
| Abstract: | From a macroeconomic perspective, the short-term interest rate is a policy instrument under the direct control of the central bank. From a finance perspective, long rates are risk-adjusted averages of expected future short rates. Thus, as illustrated by much recent research, a joint macro-finance modeling strategy will provide the most comprehensive understanding of the term structure of interest rates. We discuss various questions that arise in this research, and we also present a new examination of the relationship between two prominent dynamic, latent factor models in this literature: the Nelson-Siegel and affne no-arbitrage term structure models. |
| JEL: | G1 E4 E5 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11089&r=mac |
| By: | Ozge Senay; Alan Sutherland |
| Abstract: | A dynamic general equilibrium model of a small open economy is presented where agents may choose the frequency of price changes. A fixed exchange rate is compared to inflation targeting and money targeting. A fixed rate generates more price flexibility than the other regimes when the expenditure switching effect is relatively weak, while money targeting generates more flexibility when the expenditure switching effect is strong. These endogenous changes in price flexibility can lead to changes in the welfare performance of regimes. But, for the model calibration considered here, the extra price flexibility generated by a peg does not compensate for the loss of monetary independence. Inflation targeting yields the highest welfare level despite generating the least price flexibility of the three regimes considered. |
| JEL: | E52 F41 F42 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11092&r=mac |
| By: | Diana N. Weymark (Department of Economics, Vanderbilt University) |
| Abstract: | The problem of monetary policy delegation is formulated as a two-stage non-cooperative game between the government and the central bank. The solution to this policy game determines the optimal combination of central bank conservatism and independence. The results show that the optimal institutional design always requires some degree of central bank independence and that there is substitutability between central bank independence and conservatism. The results also show that partial central bank independence can be optimal and that there are circumstances under which it is optimal for the government to appoint a liberal central banker. |
| Keywords: | Central bank conservatism, central bank independence, inflation bias, liberal central banker |
| JEL: | E52 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0502&r=mac |
| By: | Francis X. Diebold (Department of Economics, University of Pennsylvania); Monika Piazzesi (Graduate School of Business, University of Chicago); Glenn D. Rudebusch (Economic Research, Federal Reserve Bank of San Francisco) |
| Abstract: | From a macroeconomic perspective, the short-term interest rate is a policy instrument under the direct control of the central bank. From a finance perspective, long rates are risk-adjusted averages of expected future short rates. Thus, as illustrated by much recent research, a joint macro-finance modeling strategy will provide the most comprehensive understanding of the term structure of interest rates. We discuss various questions that arise in this research, and we also present a new examination of the relationship between two prominent dynamic, latent factor models in this literature: the Nelson-Siegel and affine no-arbitrage term structure models. |
| Keywords: | term structure, yield curve, Nelson-Siegel model, affine equilibrium model |
| JEL: | G1 E4 E5 |
| Date: | 2005–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:05-008&r=mac |
| By: | Torben G. Andersen (Department of Finance, Kellogg School of Management, Northwestern University); Tim Bollerslev (Department of Economics, Duke University); Francis X. Diebold (Department of Economics, University of Pennsylvania and NBER); Jin (Ginger) Wu (Department of Economics, University of Pennsylvania) |
| Abstract: | We selectively survey, unify and extend the literature on realized volatility of financial asset returns. Rather than focusing exclusively on characterizing the properties of realized volatility, we progress by examining economically interesting functions of realized volatility, namely realized betas for equity portfolios, relating them both to their underlying realized variance and covariance parts and to underlying macroeconomic fundamentals. |
| Keywords: | Realized volatility, realized beta, conditional CAPM, business cycle |
| JEL: | G12 |
| Date: | 2005–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:05-009&r=mac |
| By: | Carlos Vieira (Department of Economics, University of Évora) |
| Abstract: | The recent controversy over the excessive deficit procedure in Germany and France has reopened the discussion over the long run sustainability of fiscal policies. This paper tests the hypothesis of sustainability in a group of six EU countries, with an econometric methodology allowing the consideration of often neglected structural breaks in the data. It is found that, prior to EMU, only Germany followed a sustainable fiscal policy, ensuring a bounded debt-GDP ratio. The negative shock to government finances of the early 1970s appears to be still affecting the European economies. |
| Keywords: | fiscal policy, sustainability, cointegration, structural breaks |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:evo:wpecon:1_2004&r=mac |
| By: | Carlos Vieira (Department of Economics, University of Évora) |
| Abstract: | The progressive deterioration of public finances in most developed countries, during the last two decades, prompted an extensive discussion on the effects of government deficits on the interest rate and, consequently, on employment and economic growth. The empirical literature, largely focused on the US, is far from conclusive. This paper examines this relationship in six core EU countries using non-causality tests, including the recently proposed LA-VAR test. The evidence suggests that, contrary to the conventional economic theory, no causal effect from the deficits to the interest rate can in general be found. On the contrary, the econometric tests highlight the preponderant negative consequences of high interest rates on the government total deficit. |
| Keywords: | deficits, interest rates, causality, LA-VAR test, European Union |
| JEL: | E43 E62 H62 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:evo:wpecon:5_2004&r=mac |
| By: | António Caleiro (Department of Economics, University of Évora) |
| Abstract: | Notwithstanding the numerous applications of fuzzy logic in several fields of economics, it is surprising that, to the best of our knowledge, so very few applications have been made in modelling approximations of subjective economic variables, such as confidence, satisfaction or even expectations, by objective ones, such as unemployment, output or inflation. This gap in the literature is accompanied by a lack on the availability of data concerning those subjective variables. Given that one of the main concerns of fuzzy logic is to capture approximate rather than exact forms of reasoning, and this also characterises many economic situations, such as in fact forming intrinsically subjective measures of confidence, this logic can and should indeed be used to understand how some of those subjective measures can be approximated by objective ones. This task is accomplished in the paper by the use of data on consumer confidence and on the unemployment rate for the pre-enlargement fifteen European Union member states. The results indicate the clear importance of unemployment on confidence, which is a result that should be taken into account when analysing policy-making that, from a naïve and/or easy viewpoint, considers confidence as a relevant variable but ignores unemployment. |
| Keywords: | Confidence, European Union, Fuzzy Logic, Unemployment |
| JEL: | C10 C82 E32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:evo:wpecon:1_2005&r=mac |
| By: | António Caleiro (Department of Economics, University of Évora) |
| Abstract: | One of the most crucial lessons to be taken from the literature on electoral business cycles is that the shortrun electorally induced. uctuations prejudice the long-run welfare. Since the very .rst studies on the matter, some authors o.ered suggestions as to what should be done against this electorally-induced instability. The problem assumes an interesting form, given that we can presume that if electoral business cycles do exist it is because voters, being ignorant, allow them to exist or, indeed, because the government, in the case of implementing policies that are optimal in the long-run for society, may be electorally punished by voters. As the government’s optimal policies depend crucially on the behaviour of voters, the paper analyses the circumstances under which a non-representative behaviour of voters may induce the government to behave as representative of the society’s interests (without punishing it). As is well-known, governments may have the temptation to exploit the Phillips curve. This discretionary way of making economic policy generates an in.ation bias. The literature has then evolved to analyse possible punishment strategies in order to avoid that discretionary behaviour. Traditionally it is considered that the punishment takes the form of people considering announced policies as non-credible. This introduces the problem of arranging the right mechanism or moment in time to implement these punishment strategies. It turns out that elections are indeed the appropriate mechanism to punish or to reward the past behaviour of the incumbent. In fact, elections can be used to turn voters, i.e. the public into the principal who has all the incentives to motivate the government, as the agent, to use the appropriate policies. The paper analyses the circumstances under which an optimal contract can be established between the electorate and the government in order to guarantee that the government behaves in accordance with the true interests of the society. |
| Keywords: | Economic Policies, Elections, Optimal Contracts, Principal-Agent |
| JEL: | D72 E32 E61 |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:evo:wpecon:9_2004&r=mac |
| By: | Nirvikar Singh (University of California, Santa Cruz); T. Srinivasan (Economic Growth Center, Yale University) |
| Abstract: | This paper assesses India's current fiscal situation, its likely future evolution, and impacts on the economy. We examine possible reforms of macroeconomic policy (including fiscal, monetary and exchange rate policy) and broader institutional reforms that will bear on the macroeconomic situation. We also consider the political feasibility of possible reforms. We examine both medium and longer run scenarios, and fiscal sustainability and adjustment going beyond conventional government budget deficits, to include off-budget liabilities, both actual and contingent. We conclude with our assessment of reforms focused on improving the fisc. |
| Date: | 2004–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucscec:1022&r=mac |
| By: | Kenneth Kletzer (University of California Santa Cruz) |
| Abstract: | Capital account liberalization in financially repressed economies often leads to a period of rapid capital inflows followed by financial crisis. This paper considers the vulnerability of the Indian economy to financial crises with international financial integration and the policy agenda for further liberalization of capital flows. The legacy of financial repression on fiscal and financial policies poses the primary challenge to stable integration of the domestic financial markets of India with international capital markets. Brief overviews of the theory and experience of liberalization elsewhere and of the recent liberalization by India frame the discussion of the risks of liberalization and sequencing of policy reforms. |
| Date: | 2004–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:ucscec:1006&r=mac |
| By: | Nirvikar Singh (University of California, Santa Cruz) |
| Abstract: | This paper examines several aspects of India's system of Intergovernmental Fiscal Relations (IGFR). It first reviews the origins and context within which the IGFR system was established and examines how it has evolved. It describes the nature of the system, including assignment of powers and functions, intergovernmental fiscal transfers and the principles that guide their design. It examines several other dimensions of the IGFR system, such as its interface with policy imperatives, evolution of norms, and recent institutional developments. It concludes with an assessment of lessons learned so far, and key challenges that lie ahead. |
| Date: | 2004–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:scciec:1040&r=mac |
| By: | Kenneth Kletzer (University of California Santa Cruz) |
| Abstract: | Capital account liberalization in financially repressed economies often leads to a period of rapid capital inflows followed by financial crisis. This paper considers the vulnerability of the Indian economy to financial crises with international financial integration and the policy agenda for further liberalization of capital flows. The legacy of financial repression on fiscal and financial policies poses the primary challenge to stable integration of the domestic financial markets of India with international capital markets. Brief overviews of the theory and experience of liberalization elsewhere and of the recent liberalization by India frame the discussion of the risks of liberalization and sequencing of policy reforms. |
| Date: | 2004–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:cdl:scciec:1039&r=mac |
| By: | Samarjit Das; Kaushik Bhattacharya |
| Abstract: | The paper attempts to examine whether there is price convergence across various regions in India. Our results indicate significant presence of cross-sectional de- pendence in prices in India, rendering some of the standard panel unit root tests inapplicable. Using various panel unit root tests that are robust to cross-sectional dependence, it is found that relative price levels among various regions in India mean-revert. We decompose each series into a set of common factors and idiosyn- cratic components. The decomposition enables us to test stationarity and estimate half-lives of the common factors and the idiosyncratic components separately. Both these components in case of India are found to be stationary. Idiosyncratic price shocks, however, are found to be more persistent as compared to the common factor. The results also indicate that transportation costs proxied by distance can explain a part of the variation in prices between two locations in India. |
| Keywords: | Cross co-integration, Cross-sectional dependence, Panel unit root tests, Common factor, Price convergence |
| JEL: | C23 E31 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse1_2005&r=mac |