nep-mac New Economics Papers
on Macroeconomics
Issue of 2011‒08‒15
29 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Preferences of the Central Reserve Bank of Peru and optimal monetary policy rules in the inflation targeting regime. By Cabrera, Nilda; Bejarano, Edilean; Savino Portugal, Marcelo
  2. "Financial-Sector Shocks in a Credit-View Model" By Burton A. Abrams
  3. Evaluation of Wavelet-based Core Inflation Measures: Evidence from Peru By Erick Lahura; Marco Vega
  4. The dynamics of Spanish public debt and sustainable paths for fiscal consolidation By Esposito, Piero; Paradiso, Antonio; Rao, B. Bhaskara
  5. The Role of Monetary Policy in Turkey during the Global Financial Crisis (Kuresel Kriz Doneminde Turkiye'de Para Politikasinin Rolu) By Harun Alp; Selim Elekdag
  6. "The Political Business Cycle: New Evidence from the Nixon Tapes" By Burton A. Abrams; James L. Butkiewicz
  7. "Keynesian Fiscal Stimulus: What Have We Learned from the Great Recession?" By Laurence Seidman
  8. Monetary-fiscal-trade policy and economic growth in Pakistan: time series empirical investigation By Syed tehseen, jawaid; Faisal sultan, qadri; Nasir, ali
  9. International Risk Cycles By François Gourio; Michael Siemer; Adrien Verdelhan
  10. The dynamics of French public debt: Paths for fiscal consolidations By Esposito, Piero; Paradiso, Antonio; Rao, B. Bhaskara
  11. Panel data evidence on non-Keynesian efects of fiscal policy in the EU New Member By Borys, Paweł; Ciżkowicz, Piotr; Rzońca, Andrzej
  12. Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy By Favero, Carlo A.; Giavazzi, Francesco; Perego, Jacopo
  13. Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy By Carlo Favero; Francesco Giavazzi; Jacopo Perego
  14. "Did the 2008 Rebate Fail? A Response to Taylor and Feldstein" By Kenneth A. Lewis; Laurence S. Seidman
  15. Public Expenditures on Education and Health in Ukraine before and during the Global Crisis By Dmytro Boyarchuk; Oleksandra Betliy; Irina Orlova
  17. Unemployment in Latin America and the Caribbean By Laurence M. Ball; Nicolás De Roux; Marc Hofstetter
  18. Optimal Capital Taxation and Consumer Uncertainty By Justin Svec
  19. L'intermédiation financière dans l'analyse macroéconomique : Le défi de la crise By Eleni Iliopulos; Thepthida Sopraseuth
  20. Determinants of Inflation in Nigeria: A Co- Integration Approach By Olatunji, G.B.; Omotesho, O.A.; Ayinde, Opeyemi E.; Ayinde, K.
  21. Does microfinance move the households toward self employment? By Khaleque, Abdul
  22. Convergence and Distortions: the Czech Republic, Hungary and Poland between 1996–2009 By István Kónya
  23. An estimate of the potential growth of the Spanish economy By Pablo Hernández de Cos; Mario Izquierdo; Alberto Urtasun
  24. Evolution of Zimbabwe’s economic tragedy: a chronological review of macroeconomic policies and transition to the economic crisis By Ndlela, Thandinkosi
  26. Stories of the Twentieth Century for the Twenty-First By Gourinchas, Pierre-Olivier; Obstfeld, Maurice
  27. China’s new exchange rate regime, optimal basket currency and currency diversification By Zhang, Zhichao; Shi, Nan; Zhang, Xiaoli
  28. How to end to the debt crisis in one month By Punabantu, Siize
  29. Impacto amplificador del ajuste de inventarios ante choques de demanda según especificaciones flexibles By Barrera, Carlos R.

  1. By: Cabrera, Nilda (PUC-RJ, Brazil); Bejarano, Edilean (UFPb, Brazil); Savino Portugal, Marcelo (UFRGS, Brazil and CNPq)
    Abstract: This study aims to identify the preferences of the monetary authority in the Peruvian regime of inflation targeting through the derivation of optimal monetary policy rules. To achieve that, we used a calibration strategy based on the choice of values of the parameters of preferences that minimize the square deviation between the true interest rate and interest rate optimal simulation. The results showed that the monetary authority has applied a system of flexible inflation targeting, prioritizing the stabilization of inflation, but without disregarding gradualism in interest rates. On the other hand, concern over output stabilization has been minimal, revealing that the output gap has been important because it contains information about future inflation and not because it is considered a variable goal in itself. Finally, when the smoothing of the nominal exchange rate is considered in the loss function of the monetary authority, the rank order of preferences has been maintained and the smoothing of the exchange rate proved insignificant.
    Keywords: Inflation target; Central Bank preferences, Optimal monetary policy rules, Central Bank of Peru.
    JEL: C61 E52 E58
    Date: 2011–06
  2. By: Burton A. Abrams (Department of Economics,University of Delaware)
    Abstract: A variation of the Bernanke-Blinder credit-view model reveals that holding constant the money supply following various financial-sector shocks, including an autonomous drop in the money multiplier, is insufficient to prevent aggregate demand from decreasing.
    Keywords: credit-view model, monetary policy, money-supply model
    JEL: F41 E51
    Date: 2011
  3. By: Erick Lahura (Departamento de Economía - Pontificia Universidad Católica del Perú; Banco Central de la Reserva del Perú); Marco Vega (Departamento de Economía - Pontificia Universidad Católica del Perú; Banco Central de la Reserva del Perú)
    Abstract: Under inflation targeting and other related monetary policy regimes, the identication of non-transitory inflation and forecasts about future inflation constitute key ingredients for monetary policy decisions. In practice, central banks perform these tasks using so-called "core inflation measures". In this paper we construct alternative core inflation measures using wavelet functions and multiresolution analysis (MRA), and then evaluate their relevance for monetary policy. The construction of wavelet-based core inflation measures (WIMs) is relatively new in the literature and their assessment has not been addressed formally, this paper being the first attempt to perform both tasks for the case of Peru. Another main contribution of this paper is that it proposes two alternative criteria for evaluating core inflation measures: (i) a VAR-based long-run criterion, and (ii) forecast-based criteria. Evidence from Peru shows that WIMs are superior in terms of long-run performance, and that they could improve short-term (up-to-6-months) inflation forecasts.
    Keywords: Core inflation, wavelets, forecast, structural VAR
    JEL: C45 E31 E37 E52
    Date: 2011
  4. By: Esposito, Piero; Paradiso, Antonio; Rao, B. Bhaskara
    Abstract: This paper analyses possible patterns for the Spain debt-to-GDP ratio with a small macroeconomic model. The role of international macroeconomic variables (such as the US and French GDP growth rates, prices of raw materials, ECB monetary policy stance) and domestic policy instruments is analyzed in the debt dynamics. We find that external conditions, together with policies aimed to stimulate the growth and fulfilling Maastricht restrictions on deficit, play a fundamental role for fiscal consolidation in Spain and help to reach a sustainable pattern.
    Keywords: Debt to GDP Ratio; Spain Economy; International Factors; SUR
    JEL: E62 H68 H63
    Date: 2011–07–25
  5. By: Harun Alp; Selim Elekdag
    Abstract: As an emerging economy, Turkey is an interesting case study because it was one of the hardest hit countries by the crisis, with a year-over-year contraction of 15 percent during the first quarter of 2009. At the same time, anticipating the fallout from the crisis, the Central Bank of the Republic of Turkey (CBRT) decreased policy rates by an astounding 1025 basis points over the November 2008 to November 2009 period. In this context, this paper addresses the following broad question: If an inflation targeting framework underpinned by a flexible exchange rate regime was not adopted, how much deeper would the recent recession have been? Taking the most intense year of the crisis as our baseline, namely 2009, counterfactual simulations indicate that rather than the actual contraction of –4.8 percent, the growth outturn would have been –6.2 percent if the CBRT had not implemented countercyclical and discretionary interest rate cuts. Further, if a fixed exchange rate regime was instead in place, then the counterfactual simulations indicate a growth rate of –8.0 percent in 2009. In other words, the interest rate cuts implemented by the CBRT and exchange rate flexibility both helped substantially soften the impact of the global financial crisis. These counterfactual experiments are based on an estimated structural model which along with standard nominal and real rigidities, include a financial accelerator mechanism in an open-economy framework.
    Keywords: Financial Accelerator, Bayesian Estimation, DSGE Model, Financial Crises, Sudden Stops, Monetary Policy, Turkey, Emerging Economies, Emerging Markets
    JEL: E5 F3 F4 C11
    Date: 2011
  6. By: Burton A. Abrams (Department of Economics,University of Delaware); James L. Butkiewicz (Department of Economics,University of Delaware)
    Abstract: Drawing from the personal tape recordings made during the presidency of Richard Nixon, we uncover and report in this paper new evidence that Nixon manipulated Arthur Burns and the Federal Reserve Bank into creating a political business cycle that helped secure Nixon’s reelection victory in 1972. Nixon understood the risks that his desired monetary policy imposed, but chose to trade longer-term economic costs to the economy for his own short-term political benefit.
    Keywords: Monetary Policy; Political Business Cycle
    JEL: E5 E3 E58
    Date: 2011
  7. By: Laurence Seidman (Department of Economics,University of Delaware)
    Abstract: What have we learned from the Great Recession about Keynesian fiscal stimulus? This article contains five sections that develop the following five points: (1) There is confusion about what constitutes Keynesian fiscal stimulus; (2) Economists are deeply divided about fiscal stimulus; (3) A fundamental error has been committed by an influential economist in estimating the recession magnitude of the Keynesian multiplier; (4) A fundamental error has been committed by two influential economists in their analysis of the impact of the 2008 tax rebate on consumption spending; (5) Advocates of fiscal stimulus in recession should support keeping government debt low in prosperity.
    Keywords: fiscal stimulus, fiscal policy, Great Recession
    JEL: E62
    Date: 2011
  8. By: Syed tehseen, jawaid; Faisal sultan, qadri; Nasir, ali
    Abstract: This study empirically examines the effect of monetary, fiscal and trade policy on economic growth in Pakistan using annual time series data from 1981 to 2009. Money supply, government expenditure and trade openness are used as proxies of monetary, fiscal and trade policy respectively. Cointegration and error correction model indicate the existence of positive significant long run and short run relationship of monetary and fiscal policy with economic growth. Result also indicates that monetary policy is more effective than fiscal policy in Pakistan. In contrast, trade policy has insignificant effect on economic growth both in the short run and in the long run. In light of the findings, it is suggested that the policy makers should focus more on monetary policy in order to ensure economic growth in the country. It is also recommended that further research should be conducted to find out such components of exports and imports which lead to the ineffectiveness of trade policy to enhance economic growth in Pakistan.
    Keywords: Monetary; Fiscal; Trade; Economic Growth
    JEL: E62 F13 E42 F43
    Date: 2011–07–21
  9. By: François Gourio; Michael Siemer; Adrien Verdelhan
    Abstract: Recent work in international finance suggests that the forward premium puzzle can be accounted for if (1) aggregate uncertainty is time-varying, and (2) countries have heterogeneous exposures to a world aggregate shock. We embed these features in a standard two-country real business cycle framework, and calibrate the model to match the differences between low and high interest rates countries. Unlike traditional real business cycle models, our model generates volatile exchange rates, a large currency forward premium, "excess comovement'' of asset prices relative to quantities, and an imperfect correlation between relative consumption growth and exchange rates. Our model implies, however, that high interest rate countries have smoother quantities, equity returns and interest rates than low interest rate countries, contrary to the data.
    JEL: E32 E44 F31 G12
    Date: 2011–08
  10. By: Esposito, Piero; Paradiso, Antonio; Rao, B. Bhaskara
    Abstract: We analyze possible targets for the French debt-to-GDP ratio with a small model. The role of the US and German GDP growth, prices of raw materials, ECB monetary policy, and domestic policy is analyzed in the debt dynamics. We find that external conditions, together with policies to stimulate growth and to generate a government surplus, play a fundamental role in the French fiscal consolidation.
    Keywords: Debt to GDP Ratio; French Economy; International Factors
    JEL: E62 H68 H63
    Date: 2011–07–15
  11. By: Borys, Paweł; Ciżkowicz, Piotr; Rzońca, Andrzej
    Abstract: There is growing evidence that fiscal consolidation may contribute to economic growth even in the short term. In this paper we review recent research on such non-Keynesian fiscal policy effects and apply panel data econometric techniques to examine the consequences of fiscal consolidation in the EU New Member States. We extend the analysis to test potential channels through which non-Keynesian effects may operate. The results confirm that composition of the consolidation determines the output response. Moreover, we find evidence that all types of fiscal consolidations stimulate private investments, while export acceleration is observed only when consolidations involve mostly expenditure curtailment. Private consumption reaction to fiscal policy shows signs of nonlinearity - in the case of minor adjustments Keynesian effects dominate, but they are cancelled out when sizable consolidations are considered.
    Keywords: fiscal consolidation; non-Keynesian efects; New Member States; panel data
    JEL: E62 D81 E32 C23 E23 E44
    Date: 2011–07
  12. By: Favero, Carlo A.; Giavazzi, Francesco; Perego, Jacopo
    Abstract: This paper shows how the richer frequency and variety of fiscal policy shocks available in an international sample can be analyzed recognizing the heterogeneity that exists across different countries. The main conclusion of our empirical analysis is that the question 'what is the fiscal policy multiplier' is an ill-posed one. There is no unconditional fiscal policy multiplier. The effect of fiscal policy on output is different depending on the different debt dynamics, the different degree of openness and the different fiscal reaction functions across different countries. There are many fiscal multipliers and an average fiscal multiplier is of very little use to describe the effect of exogenous shifts in fiscal policy on output.
    Keywords: fiscal policy; global VAR models; government budget constraint; public debt
    JEL: E62 H60
    Date: 2011–08
  13. By: Carlo Favero; Francesco Giavazzi; Jacopo Perego
    Abstract: This paper shows how the richer frequency and variety of fiscal policy shocks available in an international sample can be analyzed recognizing the heterogeneity that exists across different countries. The main conclusion of our empirical analysis is that the question "what is the fiscal policy multiplier" is an ill-posed one. There is no unconditional fiscal policy multiplier. The effect of fiscal policy on output is different depending on the different debt dynamics, the different degree of openness and the different fiscal reaction functions across different countries. There are many fiscal multipliers and an average fiscal multiplier is of very little use to describe the effect of exogenous shifts in fiscal policy on output.
    JEL: E62 H60
    Date: 2011–08
  14. By: Kenneth A. Lewis (Department of Economics,University of Delaware); Laurence S. Seidman (Department of Economics,University of Delaware)
    Abstract: Did the 2008 rebate fail to stimulate consumer spending? In their influential AER articles, John Taylor and Martin Feldstein each claim that BEA aggregate time series data show that the 2008 rebate failed. Re-examining the BEA data, we find that the data instead show there is a high probability that the rebate stimulated consumption. Moreover, the hypothesis that a rebate has half the impact of ordinary disposable income cannot be rejected. Thus, we find that analysis of the BEA aggregate time series data is consistent with the conclusion from the micro-data studies that the 2008 rebate stimulated consumer spending.
    Keywords: fiscal policy, fiscal stimulus, tax rebates
    JEL: E62
    Date: 2011
  15. By: Dmytro Boyarchuk; Oleksandra Betliy; Irina Orlova
    Abstract: The report analyzes the impact of the global financial crisis on public services delivery in education and healthcare. The analysis has been undertaken from the macro-perspective. Pre-crisis and crisis economic developments are outlined and fiscal accounts developments are presented. The performance of the education and healthcare sectors are described in the macro-context.
    Keywords: Public finances, Healthcare, Education, Financial crisis impact, Public services delivery
    JEL: E62 H4 H51 H52 I18 I22 I28
    Date: 2011
  16. By: Paul Castillo; Luis Maertens Odria; Gabriel Rodríguez (Departamento de Economía - Pontificia Universidad Católica del Perú)
    Abstract: This paper analyzes whether the exchange rate pass-through into prices changed when the inflation targeting scheme was adopted in Peru. Firstly, a small dynamic stochastic general equilibrium model is simulated, which shows that adopting this scheme induces an increase in exchange rate volatility. Furthermore, applying the theory of the currency denomination of international trade, it is demonstrated that increased exchange rate volatility reduces the share of firms that set their prices in foreign currency (dollars). Given that the pass-though has a direct relationship with this share, it is shown that adopting inflation targeting generates a pass-through contraction. Secondly, we empirically test whether the Peruvian Central Bank’s decision to adopt inflation targeting in January 2002 actually had an effect on the pass-through estimating a time-varying vector autoregressive model which allows for an asymmetrical estimation of the pass-through. It provides parameters for both the pre and post inflation targeting regimes based on the assumption that the transition from one regime to the other is smooth. An analysis of the generalized impulse response functions reveals that the decision to adopt inflation targeting significantly decreased the exchange rate pass-throughs into import, producer, and consumer prices. The results are consistent with economic theory and are robust to the specification of parameters of the model.
    Keywords: Inflation targeting/exchange rate pass-through into prices/ TV-VAR models
    JEL: E52 E58 F31
    Date: 2011
  17. By: Laurence M. Ball; Nicolás De Roux; Marc Hofstetter
    Abstract: This study constructs a new data set on unemployment rates in Latin America and the Caribbean and then explores the determinants of unemployment. We compare different countries, finding that unemployment is influenced by the size of the rural population and that the effects of government regulations are generally weak. We also examine large, persistent increases in unemployment over time, finding that they are caused by contractions in aggregate demand. These demand contractions result from either disinflationary monetary policy or the defense of an exchange-rate peg in the face of capital flight. Our evidence supports hysteresis theories in which short-run changes in unemployment influence the natural rate.
    JEL: E24 E52 F41 J60
    Date: 2011–08
  18. By: Justin Svec (Department of Economics, College of the Holy Cross)
    Abstract: This paper analyzes the impact of consumer uncertainty on optimal fiscal policy in a model with capital. The consumers lack confidence about the probability model that characterizes the stochastic environment and so apply a max-min operator to their optimization problem. An altruistic fiscal authority does not face this Knightian uncertainty. It is shown analytically that the government, in responding to consumer uncertainty, no longer sets the expected capital tax rate exactly equal to zero, as is the case in the full-confidence benchmark model. However, our numerical results indicate that the government does not diverge far from this value. Even though the capital income tax rate is close to zero in expectation, consumer uncertainty leads the altruistic government to implement a more volatile capital tax rate across states. In doing so, the government relies more heavily on the capital tax and, consequently, less heavily on the labor income tax to finance the shock to public spending.
    Keywords: Robust control, uncertainty, taxes, capital, Ramsey problem
    JEL: E61 E62 H21
    Date: 2011–08
  19. By: Eleni Iliopulos (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CEPREMAP - Centre pour la recherche économique et ses applications); Thepthida Sopraseuth (CEPREMAP - Centre pour la recherche économique et ses applications, GAINS-TEPP - Université du Maine)
    Abstract: Dans cet article, nous proposons une revue de la littérature sur les frictions financières dans les modèles d'équilibre général intertemporels et stochastiques. Nous présentons en premier lieu les contributions pionnières qui ont analysé les effets d'amplification associés à l'accélérateur financier. Nous procédons ensuite à un examen de la littérature foisonnante apparue à la suite de la crise financière. Les contributions récentes visent à dépasser les limites des modèles fondateurs en proposant des modélisations plus fine de l'activité des intermédiaires financiers et de leur impact macroéconomique.
    Keywords: Frictions financières, intermédiaire financier, politique monétaire, fluctuations.
    Date: 2011–07
  20. By: Olatunji, G.B.; Omotesho, O.A.; Ayinde, Opeyemi E.; Ayinde, K.
    Abstract: Inflation is undeniable one of most leading and dynamics macroeconomics issues confronting almost all economies of the world. Its dynamism has made it an imperative issue to be considered. Hence the study examines the factors affecting inflation in Nigeria. Time series data were employed for the study. The data was sourced from the Central Bank of Nigeria and National Bureau of Statistics. Descriptive statistics and cointegration analysis were the analytical tools used. It was observed that there were variations in the trend pattern of inflation rate. Some of the variables considered were significant in determining inflation in Nigeria. The previous total export was found to have a negative impact on current inflation while the previous total import exerts a positive effect likewise the food price index. It has thus been recommended that policies that will set the interest rate to a level at which it will encourage investment and increase in production level could be institutionalized, importation should be reduced in Nigeria such that it will not encourage change of consumer taste resulting to inflating prices, exchange rate system should be maintained at a level that will not impose threat on the Nigeria economy and the domestic consumption of petroleum product should be focused, not only exportation.
    Keywords: Financial Economics,
    Date: 2010–09
  21. By: Khaleque, Abdul
    Abstract: The present study is based on 5208 observations, which is comprised of participant households of microcredit programs, non-participant households of program villages as well as non-participant households from control villages. We found that among the participant households 37% depend on wage as well as self employment activity and 20% is solely dependent on self-employment activity and the remaining depends on dual activity (self-employment as well as wage employment), but among the non-participant households 60% is solely dependent on day labor activity. To find the link between occupation selection and microfinance participation, we use simple as well as multiple regression models like logit, multinomial logit, seemingly unrelated regression, etc. The regression results based on earnings from the elective occupations or number of days worked in that occupation suggests that the surveyed participant households have higher likelihood of being self-employed or to maintain self-employment as well as wage employment at a time to increase their welfare. The shifters due to relaxation of credit constraint or proliferation of access to credit moves toward sole self-employment activity with higher likelihood than the dual activity – to be employed in self-employment as well as wage employment within a given time span. In compendium, we can lucidly claim from this paper that beyond the asset structure of the households such as landholdings, savings, education, etc., the microfinance directly induces self-employment activity or transfer available working days from the day labor activity to self-employment activity and maximize their economic gain such as higher income, savings etc.
    Keywords: Credit; Self-employment; Logit; Multinomial logit; Seemingly Unrelated Model
    JEL: E24 J22 J24 J23
    Date: 2011–07
  22. By: István Kónya (Magyar Nemzeti Bank (central bank of Hungary))
    Abstract: The paper interprets the growth and convergence experience of three Central-Eastern European economies (the Czech Republic, Hungary, and Poland) through the lens of the stochastic neoclassical growth model. It adapts the methodology of Business Cycle Accounting (Chari, Kehoe and McGrattan 2007) to economies on a transition path. The paper uses the method to uncover distortions (‘wedges’) on the labor and capital markets, and then presents various comparisons and counterfactuals based on them. Results show that (i) capital and labor market distortions vary across the three economies, but they are well within the range of advanced economies; (ii) the Polish and Hungarian labor wedges are high, and the Czech labor wedge increases; (iii) the evolution of Hungarian wedges followed a different path than the evolution of Polish and Czech wedges, and (iv) realistic reductions in the capital and labor wedges would lead to significant output gains for Hungary and Poland.
    Keywords: convergence, distortions, Central-Eastern Europe, business cycle accounting
    JEL: E13 O11 O47
    Date: 2011
  23. By: Pablo Hernández de Cos (Banco de España); Mario Izquierdo (Banco de España); Alberto Urtasun (Banco de España)
    Abstract: This paper seeks to estimate the potential output of the Spanish economy, using the production function methodology standard in the literature. According to these estimates, the growth of the potential output of the Spanish economy stood at around 3% in the period 2000-2007, owing to the marked increase in the population and in the participation rate and the fall in structural unemployment, as well as vigorous capital accumulation. The contribution of these factors to potential output was reduced by the negative evolution of total factor productivity. In addition, the economic crisis is estimated to have had a significant negative impact on potential output, which has primarily taken the form of a large increase in structural unemployment, a sharp slowdown in population growth, as a consequence of the loss of momentum in immigrant inflows, and a reduction in the contribution of the capital stock resulting from the impact of the crisis on investment. As a result, the potential growth of the Spanish economy stands at around 1% during the crisis years and in the years immediately thereafter, insofar as some of these negative effects take place with a certain time lag. Lastly, in the medium term, the potential output of the economy is estimated to recover progressively, once the effects of the crisis have disappeared, reaching growth rates about 2%, against a background of negative rates of change in the population of age 16-64, a smooth improvement in the NAIRU, a slight recovery in investment and a higher contribution from TFP. The application of a strong process of structural reforms could, however, significantly improve the growth prospects of our economy.
    Keywords: Potential output, output gap, Spain
    JEL: E23 E32
    Date: 2011–08
  24. By: Ndlela, Thandinkosi
    Abstract: This paper chronicles Zimbabwe’s macroeconomic policies and economic development trends from the post independence period up to end of 2006. By focussing on monetary and exchange rate policies and their influence on economic developments before and after the reform programme in 1991, the paper attempts to reveal the critical macroeconomic policy underpinnings of Zimbabwe’s post-2000 economic tragedy. A key insight from the review is that despite what seemed to be concerted economic management efforts, the authorities actually never succeeded in attaining sustainable economic stabilization goals from the very start of the post-independence era. The constraints imposed by the inward looking policies of the 1980s and the eventual failure of ‘free market’ exchange rate policies of the early 1990s resulted in chronic real exchange rate overvaluation and depletion of foreign exchange reserves. This eventually culminated in the so-called “Black Friday” currency crash, and a severe foreign exchange crisis that has since been viewed as one of the most important factors that led to the economic tragedy. Hence in retrospect, the review concludes that the post-independence government in Zimbabwe never succeeded in bringing the economy into long term structural equilibrium and, thus failed to create an enabling environment for medium to long term macroeconomic policy sustainability.
    Keywords: Zimbabwe; exchange rate misalignment; macroeconomic policy; economic crisis
    JEL: E5 F31 F43
    Date: 2011–08–08
  25. By: S. S. RAJAN (Sri Sathya Sai Institute of Higher Learning,Prasanthinilayam Campus,Anantapur District, (A.P.)); K. L. N. REDDY (Sri Sathya Sai Institute of Higher Learning,Prasanthinilayam Campus,Anantapur District, (A.P.)); V. N. PANDIT (Sri Sathya Sai Institute of Higher Learning,Prasanthinilayam Campus,Anantapur District, (A.P.))
    Abstract: This paper attempts to examine technical efficiency and productivity performance of Indian scheduled commercial banks, for the period 1979-2008. We model a multiple output/multiple input technology production frontier using semiparametric estimation methods. The endogenity of multiple outputs is addressed by semi parametric estimates in part by introducing multivariate kernel estimators for the joint distribution of the multiple outputs and correlated random effects. Output is measured as the rupee value of total loans and total investments at the end of the year. The estimates provide robust inferences of the productivity and efficiency gains due to economic reforms.
    Keywords: Banking, Frontier efficiency, Productivity
    JEL: E23 G21 D24
    Date: 2011–07
  26. By: Gourinchas, Pierre-Olivier; Obstfeld, Maurice
    Abstract: A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage. Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the twenty-first century’s first global crisis. A discrete-choice panel analysis using 1973-2010 data suggests that domestic credit expansion and real currency appreciation have been the most robust and significant predictors of financial crises, regardless of whether a country is emerging or advanced. For emerging economies, however, higher foreign exchange reserves predict a sharply reduced probability of a subsequent crisis.
    Keywords: banking crisis; Credit boom; currency crisis; emerging markets; leverage; sovereign default
    JEL: E44 F32 F34 G15 G21 N10
    Date: 2011–08
  27. By: Zhang, Zhichao; Shi, Nan; Zhang, Xiaoli
    Abstract: We build an optimising framework to analyse a class of economies that adopt an ECU-type basket currency while in transition to increased flexibility of the exchange rate regime. Instead of conventional basket pegging, such an economy uses an ECU-type currency index as a benchmark for monitoring and assessing exchange rate movements. This provides an anchoring device for the nation’s exchange rate regime and allows the home currency’s exchange rate to fluctuate. Under the assumption that the central bank is chiefly interested in maintaining stability, the optimal structure of the basket currency is based on its contribution to minimizing the volatility of the country’s external account. A currency invariance index is applied to capture the effect of the country’s exit from exclusive linkage with the US dollar. The approach is illustrated by Chinese exchange rate policy. We find it advisable and viable for China to form a basket currency with a diversified portfolio of currencies. While the portfolio’s weighting scheme could favour the dollar, euro and Japanese yen, we show that the composition of the basket is open to a wide range of possibilities. Moreover, contrary to general fears, there is considerable potential for China to engage in currency diversification, which will not necessarily affect the dollar’s position.
    Keywords: Exchange rate regime; Basket currency; Currency diversification
    JEL: E58 P45 F31
    Date: 2011–08–05
  28. By: Punabantu, Siize
    Abstract: The modern economic theory implemented today is inherently flawed. Unfortunately these flaws are not apparent in contemporary economic theory which is built on the idea that scarcity is an ever present condition; an approach referred to as scarce resource theory (SRT) in operating level economics. The consequence of this is that leaders around the world and the governments they oversee today are being misled by the very fundamental approaches in contemporary economic theory they are advised will protect their industries and citizens.
    Keywords: Scarcity; banking; credit creation; banks; resource creation; implosion; wobble effect; economic thought; poverty; wealth; equation of exchange; money; price; mark-up; cost plus pricing; rationality; operating level economics; economic growth; expenditure fallacy; paradox; economic operating system
    JEL: E12 D11 E42 E31 D10 E50 H63
    Date: 2011–08–09
  29. By: Barrera, Carlos R. (BCRP y UNMSM)
    Abstract: La presente investigación aproxima cuantitativamente las relaciones dinámicas potencialmente asimétricas entre el crecimiento del PBI, del acervo de inventarios y de tres componentes de la demanda agregada (la demanda interna pública, la demanda interna privada y, en particular, la demanda externa por exportaciones) durante la experiencia peruana de crecimiento basado en el mercado (1993-2010). Para capturar la potencial presencia de asimetrías en el vector de medias condicionales, se propone un modelo dinámico flexible (VAR neuronal), una distribución t de Student para el vector de perturbaciones asociado, así como un modelo de heteroscedásticidad dinámica (ARCH) para su matriz de co-varianzas condicionales. Los parámetros de ambos momentos condicionales son robustos ante la presencia de observaciones atípicas -outliers- debido a que los vectores de perturbaciones son realizaciones de una distribución t de Student multi-variada, lo que además reduce la presencia de asimetrías espurias en las medias condicionales. Al cubrir el costo computacional requerido, la aproximación de los parámetros logra develar la presencia de incentivos para mantener inventarios que son adicionales al tradicional suavizamiento de la producción. Un parámetro estadísticamente diferente de cero en la estructura contemporánea indica que un choque positivo en el ritmo de crecimiento de la demanda privada será absorbido principalmente por un aumento más que proporcional en el choque del ritmo de la producción. Este impacto amplificador ("des-moderador") de los choques de demanda sobre la evolución de la producción es consistente con los cálculos de la incidencia promedio del crecimiento de la inversión en inventarios en el crecimiento del producto real durante 4 recesiones recientes y se explicaría por el ciclo agregado de los inventarios (aunque no necesariamente de bienes finales).
    Keywords: Inventarios, Fluctuaciones en los negocios.
    JEL: E29 E3
    Date: 2011–06

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