nep-mac New Economics Papers
on Macroeconomics
Issue of 2007‒05‒04
thirty-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. On Stickiness, Cash in Advance, and Persistence By Auray, Stephane; de Blas, Beatriz
  2. U.S. evolving macroeconomic dynamics - a structural investigation By Luca Benati; Haroon Mumtaz
  3. On the Welfare Cost of Inflation and the Recent Behavior of Money Demand By Peter N. Ireland
  4. Flattening of the Phillips Curve: Implications for Monetary Policy By Dora M. Iakova
  5. Implementing Inflation Targeting: Institutional Arrangements, Target Design, and Communications By Marcel Peter; Geoffrey Heenan; Scott Roger
  6. Balance of Payments Crises Under Inflation Targeting By Michael Kumhof; Shujing Li; Isabel K. Yan
  7. Tax reform and labour-market performance in the euro area - a simulation-based analysis using the New Area-Wide Model By Günter Coenen; Peter McAdam; Roland Straub
  8. Politically Optimal Fiscal Policy By Michael Kumhof; Irina Yakadina
  9. Testing the Transparency Benefits of Inflation Targeting: Evidence from Private Sector Forecasts By Christopher W. Crowe
  10. Brazil's Long-Term Growth Performance -Trying to Explain the Puzzle By Martin Cerisola; Ricardo Adrogue; Gaston Gelos
  11. Volatility and Growth in Latin America: An Episodic Approach By Rishi Goyal; Ratna Sahay
  12. Market discipline, financial integration and fiscal rules - what drives spreads in the euro area government bond market? By Simone Manganelli; Guido Wolswijk
  13. Financial Market Risk and U.S. Money Demand By David Cook; Woon Gyu Choi
  14. Monetary Policy in an Equilibrium Portfolio Balance Model By Michael Kumhof; Stijn van Nieuwerburgh
  15. Rebalancing China's Economy: What Does Growth Theory Tell Us? By Jahangir Aziz
  16. How do Capital Controls Affect the Transmission of Foreign Shocks? By Dudley Cooke
  17. Modeling the evolution of Gini coefficient for personal incomes in the USA between 1947 and 2005 By Ivan O. Kitov
  18. Public Infrastructures, Public Consumption, and Welfare in a New-Open-Economy-Macro Model By Giovanni Ganelli; Juha Tervala
  19. Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey By Issouf Samake; Evan Tanner
  20. Catch-Up Growth, Habits, Oil Depletion, and Fiscal Policy: Lessons from the Republic of Congo By Daniel Leigh; Stéphane Carcillo; Mauricio Villafuerte
  21. Efficacité Budgétaire dans une union monétaire en cas d’intégration financière imparfaite. By Gilbert Koenig; Irem Zeyneloglu
  22. Fiscal Harmonization in the Presence of Public Inputs By Gonzalo Fernández de Córdoba; José L. Torres
  23. Central Bank Boards Around the World: Why Does Membership Size Differ? By Helge Berger; Volker Nitsch; Tonny Lybek
  24. Central Bank Autonomy: Lessons from Global Trends By Jean-Francois Segalotto; Martin Sommer; Marco Arnone; Bernard Laurens
  25. Interpreting EU Funds Data for Macroeconomic Analysis in the New Member States By Robert Sierhej; Christoph B. Rosenberg
  26. Effects of Globalization on Labor's Share in National Income By Anastasia Guscina
  27. On the Ramsey Equilibrium with heterogeneous consumers and endogenous labor supply By Stéphano Bosi; Thomas Seegmuller
  28. Portfolio Credit Risk and Macroeconomic Shocks: Applications to Stress Testing Under Data-Restricted Environments By Miguel A. Segoviano Basurto
  29. Guyana: Why Has Growth Stopped? An Empirical Study on the Stagnation of Economic Growth By Cornelia Staritz; Judith Gold; Ruben Atoyan
  30. Growth in the Dominican Republic and Haiti: Why has the Grass Been Greener on One Side of Hispaniola By Cemile Sancak; Laura Jaramillo
  31. Uganda: Managing More Effective Decentralization By Giorgio Brosio; Maria Gonzalez; Ehtisham Ahmad

  1. By: Auray, Stephane (Universite Lille 3, GREMARS and CIRPEE, Villeneuve d'Acsq cedex, France); de Blas, Beatriz (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: This paper shows that a model which combines sticky price and sticky wages with investment in the cash-in-advance constraint generates business cycle dynamics consistent with empirical evidence. The model reproduces the responses of the key macroeconomic variables to technology and money supply shocks. In particular, the model generates enough output and inflation persistence with standard stickiness parameters. This setup is also able to generate the liquidity effect after a money injection, overcoming other standard new Keynesian models.
    Keywords: sticky prices; sticky wages; monetary facts; labor market facts; cash-in-advance
    JEL: E32 E41 E52
    Date: 2007–03
  2. By: Luca Benati (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Haroon Mumtaz (Monetary Assessment and Strategy Division, Bank of England, Threadneedle Street, London, EC2R 8AH, United Kingdom.)
    Abstract: We fit a Bayesian time-varying parameters structural VAR with stochastic volatility to the Federal Funds rate, GDP deflator inflation, real GDP growth, and the rate of growth of M2. We identify 4 shocks–monetary policy, demand non-policy, supply, and money demand–by imposing sign restrictions on the estimated reduced-form VAR on a period-by-period basis. The evolution of the monetary rule in the structural VAR accords well with narrative accounts of post-WWII U.S. economic history, with (e.g.) significant increases in the long-run coefficients on inflation and money growth around the time of the Volcker disinflation. Overall, however, our evidence points towards a dominant role played by good luck in fostering the more stable macroeconomic environment of the last two decades. First, the Great Inflation was due, to a dominant extent, to large demand non-policy shocks, and to a lower extent to supply shocks. Second, imposing either Volcker or Greenspan over the entire sample period would only have had a limited impact on the Great Inflation episode, while imposing Burns and Miller would have resulted in a counterfactual inflation path remarkably close to the actual historical one. Although the systematic component of monetary policy clearly appears to have improved over the sample period, this does not appear to have been the dominant influence in post-WWII U.S. macroeconomic dynamics. JEL Classification: E32, E47, E52, E58.
    Keywords: Bayesian VARs, stochastic volatility, identified VARs, time-varying parameters, frequency domain, Great Inflation, Lucas critique.
    Date: 2007–04
  3. By: Peter N. Ireland (Boston College)
    Abstract: Post-1980 U.S. data trace out a stable long-run money demand relationship of Cagan's semi-log form between the M1-income ratio and the nominal interest rate, with an interest semi-elasticity of 1.79. Integrating under this money demand curve yields estimates of the welfare cost of modest departures from Friedman's zero nominal interest rate rule for the optimum quantity of money that are quite small. The results suggest that the Federal Reserve's current policy, which generates low but still positive rates of inflation, provides an adequate approximation in welfare terms to the alternative of moving all the way to the Friedman rule.
    Keywords: inflation, welfare cost, money demand, Friedman rule
    JEL: E31 E41 E52
    Date: 2007–04–20
  4. By: Dora M. Iakova
    Abstract: Over the past decade, inflation has become less responsive to domestic demand pressures in many industrial countries. This development has been attributed, in part, to globalization forces. A small macroeconomic model, estimated on UK data using Bayesian estimation, is used to analyze the monetary policy implications of this structural change. The focus is on the implications of a globalization-related flattening of the Phillips curve for the trade-off between inflation and output gap variability and for the efficient monetary policy response rule.
    Keywords: Phillips curve , efficient monetary policy rules , globalization ,
    Date: 2007–04–05
  5. By: Marcel Peter; Geoffrey Heenan; Scott Roger
    Abstract: Transparency is a central element in most aspects of the design and operation of inflation targeting regimes. This paper focuses on three elements of inflation targeting most closely associated with transparency: (i) the institutional arrangements supporting inflation targeting; (ii) the specification of the inflation target; and (iii) the central bank's policy communications. The paper is primarily aimed at providing practical advice to countries planning to develop an inflation targeting framework, but many of the issues are relevant for any credible, independent monetary policy.
    Keywords: Monetary policy , inflation targeting , Inflation targeting , Monetary policy ,
    Date: 2006–12–21
  6. By: Michael Kumhof; Shujing Li; Isabel K. Yan
    Abstract: This paper analyzes a small open economy model under inflation targeting. It shows why such a monetary regime is vulnerable to speculative attacks that take place over a short period rather than instantaneously. The speed at which the regime collapses, and the extent of reserve losses, are increasing in the central bank's explicit or implicit commitment to intervene in the foreign exchange market. Attacks are therefore ranked, from most to least severe, as follows: Exchange rate targeting, CPI inflation targeting, domestic nontradables inflation targeting, and money targeting. Under inflation targeting the size of the attack is increasing in the tradables consumption share.
    Keywords: Balance of payments crisis , inflation targeting , exchange rate targeting , foreign exchange intervention , flow speculative attack ,
    Date: 2007–04–09
  7. By: Günter Coenen (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Peter McAdam (Directorate General Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Roland Straub (Directorate General International and European Relations, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In this paper, we employ a calibrated two-country version of the New Area-Wide Model (NAWM) currently under development at the European Central Bank to examine the potential benefits and spillovers of reducing labour-market distortions caused by euro area tax structures. Our analysis shows that lowering tax distortions to levels prevailing in the United States would result in an increase in hours worked and output by more than 10 percent. At the same time, tax reductions would have positive spillovers to the euro area’s trade partners, bolstering the case for tax reforms from a global perspective. Finally, we illustrate that, in the presence of heterogeneous households, distributional effects may be of importance when gauging the impact of tax reforms. JEL Classification: E32, E62.
    Keywords: DSGE modelling, limited asset-market participation, fiscal policy, tax reform, euro area.
    Date: 2007–04
  8. By: Michael Kumhof; Irina Yakadina
    Abstract: Why do governments issue large amounts of debt? In what sense and for whom is such a policy optimal? We show that twisting the optimal taxation paradigm produces very reasonable predictions for debt and real interest rates. Adding an extra dimension of uncertainty about the political planning horizon gives rise to a positive and very plausible government debt-to-GDP ratio of about 55 percent in a model that otherwise predicts negative government debt. We quantify the impact of political uncertainty on steady state and business cycle dynamics. We illustrate how populist tax cuts can cause business cycle fluctuations.
    Keywords: Optimal Fiscal Policy , Incomplete Asset Markets , Political economy , government debt bias , Fiscal policy , Public debt , Gross domestic product , Political economy , Tax changes , Business cycles ,
    Date: 2007–03–29
  9. By: Christopher W. Crowe
    Abstract: I test whether inflation targeting (IT) enhances transparency using inflation forecast data for 11 IT adoption countries. IT adoption promotes convergence in forecast errors, suggesting that it enhances transparency. This effect is robust to dropping observations, is strengthened by using instrumental variable estimation to eliminate mean-reversion, and is absent in placebo regressions (where IT adoption is shifted by a year). This result supports Morris and Shin's (2002) contention that better public information is most beneficial for forecasters with bad private information. However, it does not support their hypothesis that better public information could make private forecasts less accurate.
    Keywords: Inflation targeting , inflation forecasts , Central Bank transparency , propensity score matching , Inflation targeting , Inflation , Economic forecasting , Central banks , Transparency , Private sector , Forecasting models , Economic models ,
    Date: 2007–01–08
  10. By: Martin Cerisola; Ricardo Adrogue; Gaston Gelos
    Abstract: This paper assesses Brazil's growth performance from a long-term perspective, using crosscountry and panel estimation techniques, building on the vast empirical literature on growth. The empirical evidence presented in this paper confirms that macroeconomic stability and several reforms have helped raise per capita growth in Brazil since the mid-1990s. The results also show that some long-standing structural weaknesses continue to weigh negatively on per capita growth. Reducing the high level of government consumption would help lower the overall consumption level in the economy and lower its intertemporal price-the real interest rate-thus helping to foster investment and growth.
    Keywords: Brazil; Per capita growth , cross country analysis , Economic growth , Brazil , Economic stabilization , Economic reforms , Economic models ,
    Date: 2007–01–04
  11. By: Rishi Goyal; Ratna Sahay
    Abstract: This paper compares the pattern of macroeconomic volatility in 17 Latin American countries during episodes of high and low growth since 1970, examining in particular the role of policy volatility. Macroeconomic outcomes are distinguished from macroeconomic policies, structural reforms and reversals, shocks, and institutional constraints. Based on previous work, a composite measure of structural reforms is constructed for the 1970-2004 period. We find that outcomes and policies are more volatile in low growth episodes, while shocks (except U.S. interest rates) are similar across episodes. Fiscal policy volatility is associated with lower growth, but fiscal policy procyclicality is not. Low levels of market-oriented reforms and structural reform reversals are also associated with lower growth.
    Keywords: Growth , volatility , structural reforms , Latin America , episodic approach , Economic growth , Latin America , Economic reforms , Economic policy , Economic models ,
    Date: 2007–01–04
  12. By: Simone Manganelli (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Guido Wolswijk (Fiscal Policies Division of DG-Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper studies the determinants of interest rate spreads of euro area 10 year government bonds against the benchmark, the German bund, after the introduction of the euro. In particular, it pays attention to the question whether market discipline is advanced or obstructed by financial integration and by fiscal rules like the Stability and Growth Pact. We first argue that financial integration – by improving market efficiency – is instrumental for markets to exert their disciplinary role. Next, we discuss the relationships between market discipline and fiscal rules, arguing that these in principle may reinforce each other. Finally, we provide strong empirical evidence that spreads depend on the ratings of the underlying bond and to a large extent are driven by the level of short-term interest rates. JEL Classification: G12, G18, C23.
    Keywords: Bond spreads, credit risk, liquidity risk.
    Date: 2007–04
  13. By: David Cook; Woon Gyu Choi
    Abstract: This paper examines empirically U.S. broad money demand emphasizing the role of financial market risk. We find that money demand rises with the liquidity risk of stock markets or the credit risk of corporate bond markets. After controlling for the effect of financial market risk, money demand becomes relatively stable over the last 35 years. At the sectoral level, household money holdings continue to be stable in a traditional model controlling for a decline in transactions costs for investing in mutual funds in the early 1990s. In contrast, business money holdings have been consistently (positively) associated with credit risk.
    Keywords: Money demand , financial market risk , stock market liquidity , money market mutual funds ,
    Date: 2007–04–17
  14. By: Michael Kumhof; Stijn van Nieuwerburgh
    Abstract: Standard theory shows that sterilized foreign exchange interventions do not affect equilibrium prices and quantities, and that domestic and foreign currency denominated bonds are perfect substitutes. This paper shows that when fiscal policy is not sufficiently flexible in response to spending shocks, perfect substitutability breaks down and uncovered interest rate parity no longer holds. Government balance sheet operations can be used as an independent policy instrument to target interest rates. Sterilized foreign exchange interventions should be most effective in developing countries, where fiscal volatility is large and where the fraction of domestic currency denominated government liabilities is small.
    Keywords: Sterilized foreign exchange intervention , imperfect asset substitutability , uncovered interest parity , portfolio balance theory ,
    Date: 2007–04–02
  15. By: Jahangir Aziz
    Abstract: This paper uses the standard one-sector neoclassical growth model to investigate why China's consumption has been low and investment high. It finds that the low cost of capital has been quantitatively an important factor. Theory predicts that the price of capital may have been significantly distorted in the 1990s and 2000s. The distortion could have been caused by nonperforming loans, borrowing constraints, and uncertainty over changes in government guidance in bank lending. If China is to rebalance growth towards relying more on consumption and less on exports and investment, banking sector reforms and financial market development could, therefore, turn out to be key.
    Keywords: Business cycle accounting , rebalancing growth , financial distortions , Economic growth , China , Economic policy , Bank reforms , Financial sector , Capital markets , Capital , Consumption , Investment , Exports , Economic models ,
    Date: 2007–01–08
  16. By: Dudley Cooke (University of Essex)
    Abstract: This paper studies the short-run transmission of foreign shocks in a small open economy with capital controls and a fixed exchange rate. Capital controls alter the transmission of shocks because endogenous changes in the domestic nominal interest rate affect savings and investment decisions. The economy's reaction to export shocks hinges on how the government chooses to restrict capital flows; that is, whether inflows or outflows are restricted. For foreign interest rate shocks, private capital flows are important, but so are the government's holdings of foreign exchange reserves. Finally, a simple graphical apparatus is developed to provide a contrast to the case when capital flows are unrestricted.
    Keywords: capital controls; foreign shocks
    JEL: E58 F32 F41
    Date: 2007–04
  17. By: Ivan O. Kitov (Russian Academy of Sciences)
    Abstract: The evolution of Gini coefficient for personal incomes in the USA between 1947 and 2005 is analyzed and modeled. There are several versions of personal income distribution (PID) provided by the US Census Bureau (US CB) for this period with various levels of resolution. Effectively, these PIDs result in different Gini coefficients due to the differences between discrete and continuous representations. When all persons of 15 years of age and over are included in the PIDs, Gini coefficient drops from 0.64 in 1947 to 0.54 in 1990. This effect is observed due to a significant decrease in the portion of people without income. For the PIDs not including persons without income, Gini coefficient is varying around 0.51 between 1960 and 2005 with standard deviation of 0.004, i.e. is in fact constant. This Gini coefficient is practically independent on the portion of population included in the PIDs according to any revision of income definitions. The driving force of the model describing the evolution of individual incomes (microeconomic level) and their aggregate value (macroeconomic level) is the change in nominal GDP per capita. The model accurately predicts the evolution of Gini coefficient for the PIDs for people with income. The model gives practically unchanged (normalized) PIDs and Gini coefficient between 1947 and 2005. The empirical Gini curves converge to the predicted one when the number of people without income decreases. Asymptotically, the empirical curves should collapse to the theoretical one when all the working age population obtains an appropriate definition of income. Therefore the model Gini coefficient potentially better describes true behavior of inequality in the USA because the definitions of income used by the US Census Bureau apparently fail to describe true income distribution.
    Keywords: Gini index, personal income distribution, Pareto distribution, microeconomic modeling, USA, real GDP, macroeconomics
    JEL: D01 D31 E17 E64 J1 O12
  18. By: Giovanni Ganelli; Juha Tervala
    Abstract: This paper focuses on the trade-off faced by governments in deciding the allocation of public expenditures between productivity-enhancing public infrastructures and utility-enhancing public consumption. From the modeling point of view, the paper augments a standard New Open Economy Macroeconomics (NOEM) model by introducing productive public infrastructures. The results show that a temporary increase in the domestic stock of public capital financed by a reduction in public consumption reduces domestic welfare in the short run because the temporary gains from higher productivity do not compensate domestic residents for the utility loss due to lower public consumption. If the policy shift is permanent domestic utility is likely to increase, while foreign residents suffer short-run welfare losses but benefit from welfare gains in the long run. This analysis implies that a permanent domestic reallocation of public spending might result in a virtuous global technological cycle.
    Keywords: Public spending composition , welfare , imperfect competition , nominal rigidities , Infrastructure , Government expenditures , Consumption , Economic models ,
    Date: 2007–03–22
  19. By: Issouf Samake; Evan Tanner
    Abstract: This paper examines the sustainability of fiscal policy under uncertainty in three emerging market countries, Brazil, Mexico, and Turkey. For each country, we estimate a vector autoregression (VAR) that includes fiscal and macroeconomic variables. Retrospectively, a historical decomposition shows by how much debt accumulation reflects unsustainable policy, adverse shocks, or both. Prospectively, Monte Carlo techniques reveal the primary surplus that is required to keep the debt/GDP ratio from rising in all but the worst 50 percent, 25 percent, and 10 percent of circumstances. Such a value-at-risk approach presents a clearer menu of policy options than currently used frameworks.
    Keywords: Tax smoothing , sustainability , vector autoregression , historical decomposition , primary surplus , Fiscal policy , Brazil , Mexico , Turkey , Emerging markets , Public debt , Economic models ,
    Date: 2007–01–08
  20. By: Daniel Leigh; Stéphane Carcillo; Mauricio Villafuerte
    Abstract: In a number of oil producing countries, oil revenue accounts for the majority of government revenue, but is expected to be depleted in a relatively short time frame. Ensuring that fiscal policy is on a sustainable path is thus a high priority, but political and social adjustment costs create incentives to delay fiscal consolidation. This paper estimates how the permanently sustainable non-oil primary deficit (PSNOPD) depends on the speed of consolidation, using an optimization model with habit formation. Realism is added by allowing for negative growth-adjusted interest rates during a temporary period of catch-up growth. Applied to the Republic of Congo, this approach leads to the following conclusions: (i) the current fiscalpolicy stance is unsustainable; (ii) social adjustment costs justify spreading the bulk of the adjustment over five years; and (iii) the slower the adjustment, the lower the PSNOPD level.
    Keywords: Sustainable fiscal policy , habit formation , permanent-income hypothesis , catch-up growth , oil , Republic of Congo ,
    Date: 2007–04–05
  21. By: Gilbert Koenig; Irem Zeyneloglu
    Abstract: Cet article se place dans le cadre de la nouvelle macroéconomie internationale en proposant un modèle d’équilibre général en concurrence imparfaite. Ce modèle décrit une union monétaire qui, comme l’UEM, n’a pas réalisé une intégration financière complète malgré l’adoption d’une monnaie unique. Il est utilisé pour analyser l’impact du degré d’intégration financière sur l’efficacité et sur les canaux de transmission des chocs budgétaires. A cette fin on introduit une intégration financière imparfaite dans la version du modèle de Obstfeld et de Rogoff (1995, 1996) décrivant des pays soumis à un régime de changes fixes et on l’adapte à la description d’une union monétaire. On se place ainsi dans le prolongement des travaux initiés par Sutherland (1996) et destinés à décrire les cas des économies en régime de changes flexibles. Mais on se distingue de ces travaux en substituant à leurs résultats numériques des solutions analytiques. Les résultats montrent que dans le cas d’une expansion budgétaire financée par impôts dans un pays membre de l’union, une hausse du degré d’intégration financière réduit la volatilité du taux d’intérêt et de la consommation à court terme dans les deux pays. Cet effet est inversé à long terme. Par contre, le bien-être est indépendant du degré d’intégration financière.
    Keywords: Nouvelle macroéconomie internationale, politique budgétaire, intégration financière, union monétaire.
    JEL: F41 E44 E62
    Date: 2007
  22. By: Gonzalo Fernández de Córdoba (Universidad de Salamanca); José L. Torres (Universidad de Málaga)
    Abstract: Fiscal harmonization for the European Union member states is a goal that encounters major difficulties for its implementation. Each country faces a particular trade-off between fiscal revenues generated by taxation and the productive efficiency loss induced by their respective tax code. Countries for which a particular harmonized tax code requires more taxation, will have to face an increased efficiency loss, for those required to decrease their taxes, will have to face a loss in fiscal revenue.
    Keywords: Fiscal harmonization, applied general equilibrium,Armonización fiscal, equilibrio general aplicado.
    JEL: E43 E62
    Date: 2007
  23. By: Helge Berger; Volker Nitsch; Tonny Lybek
    Abstract: This paper analyzes empirically differences in the size of central bank boards across countries. Defining a board as the body that changes monetary instruments to achieve a specified target, we discuss the possible determinants of a board's size. The empirical relevance of these factors is examined using a new dataset that covers the de jure membership size of 84 central bank boards at the end of 2003. We find that larger and more heterogeneous countries, countries with stronger democratic institutions, countries with floating exchange rate regimes, and independent central banks with more staff tend to have larger boards.
    Keywords: Committee , council , governance , decision making , monetary policy , Central banks , Governance , Monetary policy ,
    Date: 2006–12–29
  24. By: Jean-Francois Segalotto; Martin Sommer; Marco Arnone; Bernard Laurens
    Abstract: We calculate indexes of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indexes for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political autonomy of the central banks in emerging market and developing countries. Our analysis confirms that greater CBA has on average helped to maintain low inflation levels. The paper identifies four broad principles of central bank autonomy that have been shared by the majority of countries. Significant differences exist in the area of banking supervision where many central banks have retained a key role. Finally, we discuss the sequencing of reforms to separate the conduct of monetary and fiscal policies.
    Keywords: Central bank autonomy , political autonomy , economic autonomy ,
    Date: 2007–04–17
  25. By: Robert Sierhej; Christoph B. Rosenberg
    Abstract: Drawing on a dataset suitable for macroeconomic analysis, the paper provides an overview of the magnitudes, purpose and institutional implications of EU-related transfers to and from the new member states. A rough analysis of accounting identities and first-round effects shows that EU funds may have led to a fiscal drag of up to 1 percent of GDP and an additional aggregate demand stimulus of up to 1 percent of GDP during the first years of membership. These effects are likely to increase as additional funding become available under the new financial perspective, pointing to the need to consider policy tradeoffs.
    Keywords: EU transfers , new member states; EU funds data ,
    Date: 2007–04–05
  26. By: Anastasia Guscina
    Abstract: The past two decades have seen a decline in labor's share of national income in several industrial countries. This paper analyzes the role of three factors in explaining movements in labor's share--factor-biased technological progress, openness to trade, and changes in employment protection--using a panel of 18 industrial countries over 1960-2000. Since most studies suggest that globalization and rapid technological progress (associated with accelerated information technology development) began in the mid-1980s, the sample is split in 1985 into preglobalization/pre-IT revolution and postglobalization/post-IT revolution eras. The results suggest that the decline in labor's share during the past few decades in the OECD member countries may have been largely an equilibrium, rather than a cyclical, phenomenon, as the distribution of national income between labor and capital adjusted to capital-augmenting technological progress and a more globalized world economy.
    Keywords: Labor's share , capital's share , globalization , productivity , trade , labor protection , bargaining power , compensation share , national income , employment share , the Heckscher-Ohlin Theorem , Labor , National income accounts , Globalization , Labor productivity , Employment policy , Trade policy ,
    Date: 2007–01–08
  27. By: Stéphano Bosi (EQUIPPE - Département d'Economie - [Université des Sciences et Technologie de Lille - Lille I], EPEE - [Université d'Evry-Val d'Essonne]); Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: In this paper, we address the question of deterministic cycles in a Ramsey model with heterogeneous infinite-lived agents and borrowing constraints, augmented to take into account the case of elastic labor supply. Under usual restrictions, not only we show that the steady state is unique, but also we clarify its stability properties through a local analysis. We find that, in many cases, the introduction of elastic labor supply promotes convergence by widening the range of parameters for saddle-path stability and endogenous cycles can eventually disappear. These results are robustly illustrated by means of canonical examples in which consumers have separable, KPR or homogeneous preferences.
    Keywords: Saddle-path stability, endogenous cycles, heterogeneous agents, endogenous labor supply, borrowing constraint.
    Date: 2007–04–25
  28. By: Miguel A. Segoviano Basurto
    Abstract: Portfolio credit risk measurement is greatly affected by data constraints, especially when focusing on loans given to unlisted firms. Standard methodologies adopt convenient, but not necessarily properly specified parametric distributions or simply ignore the effects of macroeconomic shocks on credit risk. Aiming to improve the measurement of portfolio credit risk, we propose the joint implementation of two new methodologies, namely the conditional probability of default (CoPoD) methodology and the consistent information multivariate density optimizing (CIMDO) methodology. CoPoD incorporates the effects of macroeconomic shocks into credit risk, recovering robust estimators when only short time series of loans exist. CIMDO recovers portfolio multivariate distributions (on which portfolio credit risk measurement relies) with improved specifications, when only partial information about borrowers is available. Implementation is straightforward and can be very useful in stress testing exercises (STEs), as illustrated by the STE carried out within the Danish Financial Sector Assessment Program.
    Keywords: Portfolio credit risk measurement , stress testing , macroeconomic shock measurement , multivariate density estimation , entropy distribution , Credit risk , Economic conditions , Statistics , Economic models ,
    Date: 2007–01–03
  29. By: Cornelia Staritz; Judith Gold; Ruben Atoyan
    Abstract: After a period of exceptionally strong economic performance, Guyana's growth has stagnated since 1998. The paper tries to identify the factors that can explain this dramatic deterioration in economic performance. The paper first attempts to explain the decline of growth with a growth accounting exercise which shows that there was a significant swing in total factor productivity, and than uses a panel regression framework to analyze the growth impact of changes in various factors. Finally, through a series of cross-country exercises, the paper shows that the primary reasons for the divergence between the economic performance of Guyana and other Caribbean, HIPC, and PRGF-eligible countries in 1998-2004 are a substantial decline in share of net foreign and private domestic investment in GDP, a decline in the labor force, and a less favorable political and institutional environment.
    Keywords: Economic growth , investment , political economy , institutions ,
    Date: 2007–04–12
  30. By: Cemile Sancak; Laura Jaramillo
    Abstract: The Dominican Republic and Haiti share the island of Hispaniola and are broadly similar in terms of geography and historical institutions, yet their growth performance has diverged remarkably. The countries had the same per capita real GDP in 1960 but, by 2005, the Dominican Republic's per capita real GDP had tripled whereas that of Haiti had halved. Drawing on the growth literature, the paper explains this divergence through a combined approach that includes a panel regression to study growth determinants across a broad group of countries, and a case study framework to better understand the specific policy decisions and external conditions that have shaped economic outcomes in the Dominican Republic and Haiti. The paper finds that initial conditions cannot fully explain the growth divergence, but rather policy decisions have played a central role in the growth trends of the two countries. This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.
    Keywords: Growth , income divergence , Dominican Republic , Haiti , Economic growth , Dominican Republic , Haiti , Economic policy , Economic models ,
    Date: 2007–03–15
  31. By: Giorgio Brosio; Maria Gonzalez; Ehtisham Ahmad
    Abstract: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. A politically driven and ambitious decentralization program implemented by the authorities since the late 1990s has had mixed results in terms of enhancing service delivery. Paradoxically, concerns with the results of service delivery, partially driven by donors' requirements, have resulted in a deconcentrated system relying on conditional grants and unfunded mandates. This has reduced the incentives, responsibility, and ownership for local authorities to improve service delivery. Crucially, for functions where the local authorities have had full responsibility, better service quality has resulted than in those areas in which there are overlapping responsibilities between the center and the local authorities.
    Keywords: Fiscal policy , intergovernmental fiscal relations ,
    Date: 2006–12–21

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