nep-mac New Economics Papers
on Macroeconomics
Issue of 2015‒09‒11
170 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Financial News, Banks and Business Cycles By Christopher M. Gunn; Alok Johri
  2. Ghana: Request for a Three-Year Arrangement Under the Extended Credit Facility By International Monetary Fund. African Dept.
  3. The macroeconomic effects of the Euro Area?s fiscal consolidation 2011-2013 By Ansgar Rannenberg; Christian Schoder; Jan Strásky
  4. The macroeconomic effects of the Euro Area's fiscal consolidation 2011-2013: A Simulation-based approach By Rannenberg, Ansgar; Schoder, Christian; Strasky, Jan
  5. Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience By Goodness C. Aye; Mehmet Balcilar; Rangan Gupta; Charl Jooste; Stephen M. Miller; Zeynel Abidin Ozdemir
  6. Czech Republic: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. European Dept.
  7. On the Drivers of Inflation in Sub-Saharan Africa By Anh D. M. Nguyen; Jemma Dridi; D. Filiz Unsal; Oral Williams
  8. How to Improve the Effectiveness of Monetary Policy in the West African Economic and Monetary Union By Alexei Kireyev
  9. Singapore: Staff Report for 2015 Article IV Consultation By International Monetary Fund. Asia and Pacific Dept
  10. The Bahamas: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. Western Hemisphere Dept.
  11. Monetary Exchange in Over-the-Counter Markets: A Theory of Speculative Bubbles, the Fed Model, and Self-fulfilling Liquidity Crises By Ricardo Lagos; Shengxing Zhang
  12. A Model for Monetary Policy Analysis in Uruguay By Rafael Portillo; Yulia Ustyugova
  13. Monetary Policy in India: Transmission to Bank Interest Rates By Sonali Das
  14. Critique of accommodating central bank policies and the 'expropriation of the saver' - A review By Bindseil, Ulrich; Domnick, Clemens; Zeuner, Jörg
  15. Financial Factors: Implications for Output Gaps By Pau Rabanal; Marzie Taheri Sanjani
  16. Avoiding Dark Corners: A Robust Monetary Policy Framework for the United States By Ali Alichi; Kevin Clinton; Charles Freedman; Ondra Kamenik; Michel Juillard; Douglas Laxton; Jarkko Turunen; Hou Wang
  17. Systemic Risk: A New Trade-off for Monetary Policy? By Stefan Laseen; Andrea Pescatori; Jarkko Turunen
  18. What Really Drives Public Debt: A Holistic Approach By Pablo Anaya; Alex Pienkowski
  19. Mind the Gap: Computing Finance-Neutral Output Gaps in Latin-American Economies By Amador-Torres, Juan; Gómez González, Jose; Ojeda-Joya, Jair; Jaulin-Mendez, Oscar; Tenjo-Galarza, Fernando
  20. Ukraine: First Review Under the Extended Arrangement—Press Release; Staff Report; and Statement by the Executive Director for Ukraine By International Monetary Fund. European Dept.
  21. West African Economic and Monetary Union: Staff Report on Common Policies of Member Countries By International Monetary Fund. African Dept.
  22. The Journey to Inflation Targeting: Easier Said than Done The Case for Transitional Arrangements along the Road By Bernard Laurens; Kelly Eckhold; Darryl King; Nils Øyvind Mæhle; Abdul Naseer; Alain Durré
  23. Excess Reserves and Monetary Policy Normalization By Benjamin Lester; Roc Armenter
  24. Euro Area Policies: Staff Report for the 2015 Article IV Consultations with Member Countries By International Monetary Fund. European Dept.
  25. German labor market and fiscal reforms 1999 to 2008: Can they be blamed for intra-euro area imbalances? By Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin
  26. Panama: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Panama By International Monetary Fund. Western Hemisphere Dept.
  27. How do Carbon Emissions Respond to Business-Cycle Shocks? By Hashmat U. Khan; Christopher R. Knittel; Konstantinos Metaxoglou; Maya M. Papineau
  28. Kyrgyz Republic: Request for a Three-Year Arrangement Under the Extended Credit Facility By International Monetary Fund. Middle East and Central Asia Dept.
  29. Banks in The Global Integrated Monetary and Fiscal Model By Michal Andrle; Michael Kumhof; Douglas Laxton; Dirk Muir
  30. Learning Efficiency Shocks, Knowledge Capital and the Business Cycle : A Bayesian Evaluation By Alok Johri; Muhebullah Karimzada
  31. Samoa: 2015 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Samoa By International Monetary Fund. Asia and Pacific Dept
  32. Should stay the Mali in Zone franc area ? By Sidibe, Tidiani
  33. Morocco: Second Review Under the Arrangement Under the Precautionary and Liquidity Line-Staff Report; Press Release; and Statement by the Executive Director for Morocco By International Monetary Fund. Middle East and Central Asia Dept.
  34. A Keynesian Dynamic Stochastic Labor-Market Disequilibrium model for business cycle analysis By Christian Schoder
  35. Republic of Mozambique: Fourth Review Under the Policy Support Instrument and Request for Modification of Assessment Criteria—Press Release; Staff Report; and Statement by the Executive Director for the Republic of Mozambique By International Monetary Fund. African Dept.
  36. Сбережения и инфляция на примере России 1992 года By BLINOV, Sergey
  37. Trading Down and the Business Cycle By Nir Jaimovich; Sergio Rebelo; Arlene Wong
  38. Republic of Belarus: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. European Dept.
  39. Germany: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. European Dept.
  40. The Macroeconomic Relevance of Credit Flows: An Exploration of U.S. Data By Alexander Herman; Deniz Igan; Juan Sole
  41. Guinea-Bissau: Staff Report for the 2015 Article IV Consultation and Request for a Three-Year Arrangement Under the Extended Credit Facility By International Monetary Fund. African Dept.
  42. The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies By Abdul Abiad; Davide Furceri; Petia Topalova
  43. Kiribati: 2015 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund. Asia and Pacific Dept
  44. Uganda: Staff Report for the 2015 Article IV Consultation and Fourth Review Under the Policy Support Instrument By International Monetary Fund. African Dept.
  45. Iraq: 2015 Article IV Consultation and Request for Purchase Under the Rapid Financing Instrument - Press Release; Staff Report; and Statement by the Executive Director for Iraq By International Monetary Fund. Middle East and Central Asia Dept.
  46. Crisis, contagion and international policy spillovers under foreign ownership of banks By Marcin Kolasa; Krzysztof Makarski; Michal Brzoza-Brzezina
  47. Republic of Latvia: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. European Dept.
  48. Republic of Poland: Selected Issues By International Monetary Fund. European Dept.
  49. Antigua and Barbuda: Staff Report for the 2014 Article IV Consultation and Second Post-Program Monitoring By International Monetary Fund. Western Hemisphere Dept.
  50. Haiti: Staff Report for the 2015 Article IV Consultation and Request for a Three-Year Arrangement Under the Extended Credit Facility By International Monetary Fund. Western Hemisphere Dept.
  51. France: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. European Dept.
  52. The Way Out: Global Turmoil and Policy Recommendations By Turhan, Ibrahim M.
  53. Peru: 2015 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Peru By International Monetary Fund. Western Hemisphere Dept.
  54. Financial Crisis, US Unconventional Monetary Policy and International Spillovers By Qianying Chen; Andrew Filardo; Dong He; Feng Zhu
  55. Morocco: Ex Post Evaluation of Exceptional Access Under the 2012 Precautionary and Liquidity Line Arrangement By International Monetary Fund. Middle East and Central Asia Dept.
  56. Housing and the Business Cycle in South Africa By Goodness C. Aye; Mehmet Balcilar Author-Name-First Mehmet; Adel Bosch; Rangan Gupta
  57. The Dog That Didn’t Bark: The Strange Case of Domestic Policy Cooperation in the “New Normal†By Tamim Bayoumi
  58. Over consumption. A horse race of Bayesian DSGE models By Argentiero, Amedeo; Bovi, Maurizio; Cerqueti, Roy
  59. Household search and the aggregate labor market By Mankart, Jochen; Oikonomou, Rigas
  60. Rwanda: Third Review Under the Policy Support Instrument By International Monetary Fund. African Dept.
  61. Burkina Faso: Second and Third Reviews Under the Extended Credit Facility Arrangement, and Request for Augmentation of Access and Modification of Performance Criteria By International Monetary Fund. African Dept.
  62. Correcting “Beyond the Cycle": Accounting for Asset Prices in Structural Fiscal Balances By Estelle X. Liu; Todd Mattina; Tigran Poghosyan
  63. Republic of Belarus: Selected Issues By International Monetary Fund. European Dept.
  64. Switzerland: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. European Dept.
  65. Aggregate and distributional effects of increasing taxes on top income earners By Brüggemann, Bettina; Yoo, Jinhyuk
  66. Zambia: Staff Report for The 2015 Article IV Consultation By International Monetary Fund. African Dept.
  67. Brazil: Staff Report for the 2014 Article IV Consultation By International Monetary Fund. Western Hemisphere Dept.
  68. Jordan: Seventh and Final Review Under the Stand-By Arrangement and Proposal for Post-Program Monitoring By International Monetary Fund. Middle East and Central Asia Dept.
  69. Islamic Republic of Afghanistan: Staff-Monitored Program By International Monetary Fund. Middle East and Central Asia Dept.
  70. Lebanon: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. Middle East and Central Asia Dept.
  71. The Gambia: Request for Disbursement Under the Rapid Credit Facility, Cancellation of the Extended Credit Facility Arrangement, and Proposal for a Staff-Monitored Program—Staff Report; Press Release; and Statement by the Executive Director for the Gambia By International Monetary Fund. African Dept.
  72. Government deficits in large open economies: The problem of too little public debt By Buiter, Willem H.; Sibert, Anne C.
  73. Fair Weather or Foul? The Macroeconomic Effects of El Niño By Paul Cashin; Kamiar Mohaddes; Mehdi Raissi
  74. Financial conditions and economic activity: the potential impact of the targeted longer-term refinancing operations (TLTROS) By Hiona Balfoussia; Heather D. Gibson
  75. Global Food Prices and Domestic Inflation: Some Cross-Country Evidence By Davide Furceri; Prakash Loungani; John Simon; Susan Wachter
  76. France: Selected Issues By International Monetary Fund. European Dept.
  77. Federated States of Micronesia: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. Asia and Pacific Dept
  78. Democratic Republic Of São Tomé and Príncipe: Request for a Three-Year Arrangement Under the Extended Credit Facility and Cancellation of the Current Arrangement Under the Extended Credit Facility By International Monetary Fund. African Dept.
  79. Efficiency and Labor Market Dynamics in a Model of Labor Selection By Chugh, Sanjay K.; Merkl, Christian
  80. Are African Households Heterogeneous Agents?: Stylized Facts on Patterns of Consumption, Employment, Income and Earnings for Macroeconomic Modelers By Louise Fox
  81. Hong Kong’s Growth Synchronization with China and the U.S.: A Trend and Cycle Analysis By Dong He; Wei Liao; Tommy Wu
  82. United States: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. Western Hemisphere Dept.
  83. The four unions "PIE" on the Monetary Union "CHERRY": a new index of European Institutional Integration By Dorrucci, Ettore; Ioannou, Demosthenes; Mongelli, Francesco Paolo; Terzi, Alessio
  84. Portugal: Second Post-Program Monitoring By International Monetary Fund. European Dept.
  85. On deficits and symmetries in a fiscal capacity By Hebous, Shafik; Weichenrieder, Alfons J.
  86. Fiscal multipliers and beyond By Warmedinger, Thomas; Checherita-Westphal, Cristina; Hernández de Cos, Pablo
  87. Macroeconomic Challenges of Structural Transformation: Public Investment, Growth and Debt Sustainability in Sierra Leone By Lacina Balma; Mthuli Ncube
  88. What Drives Interest Rate Spreads in Pacific Island Countries? An Empirical Investigation By Fazurin Jamaludin; Vladimir Klyuev; Anuk Serechetapongse
  89. Republic of Croatia: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. European Dept.
  90. Luxembourg: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. European Dept.
  91. Nepal: Request for Disbursement Under the Rapid Credit Facility By International Monetary Fund. Asia and Pacific Dept
  92. Systemic Risk, Aggregate Demand, and Commodity Prices By Javier Gómezâ€Pineda; Dominique M. Guillaume; Kadir Tanyeri
  93. How Important are Debt and Growth Expectations for Interest Rates? By Sohrab Rafiq
  94. Collateral Damage: Dollar Strength and Emerging Markets’ Growth By Pablo Druck; Nicolas E. Magud; Rodrigo Mariscal
  95. Tonga: 2015 Article IV Consultation-Staff Report; and Press Release By International Monetary Fund. Asia and Pacific Dept
  96. Portugal: Selected Issues By International Monetary Fund. European Dept.
  97. Price Expectations and the U.S. Housing Boom By Pascal Towbin; Sebastian Weber
  98. Too Much of a Good Thing? Prudent Management of Inflows under Economic Citizenship Programs By Xin Xu; Ahmed El-Ashram; Judith Gold
  99. Bulgaria: Selected Issues Paper By International Monetary Fund. European Dept.
  100. China’s Growth: Can Goldilocks Outgrow Bears? By Wojciech Maliszewski; Longmei Zhang
  101. Greece: Preliminary Draft Debt Sustainability Analysis By International Monetary Fund. European Dept.
  102. Deflation and Public Finances: Evidence from the Historical Records By Nicolas End; Sampawende J.-A. Tapsoba; G. Terrier; Renaud Duplay
  103. Bosnia and Herzegovina: Financial Sector Assessment Program-Detailed Assessment of Observance of the CPMI-IOSCO Principles for Financial Market Infrastructures By International Monetary Fund. Monetary and Capital Markets Department
  104. Joining the Club? Procyclicality of Private Capital Inflows in Low Income Developing Countries By Juliana Dutra Araujo; Antonio David; Carlos van Hombeeck; Chris Papageorgiou
  105. Growth, Secular Stagnation and Wealth Preference By Yoshiyasu Ono
  106. The Impact of Foreclosure Delay on U.S. Employment By Kyle F. Herkenhoff; Lee E. Ohanian
  107. Determinants of Bank Interest Margins in the Caucasus and Central Asia By Raja Almarzoqi; Sami Ben Naceur
  108. Bosnia and Herzegovina: Financial System Stability Assessment By International Monetary Fund. Monetary and Capital Markets Department
  109. Forecasting Aggregate Retail Sales: The Case of South Africa By Goodness C. Aye; Mehmet Balcilar Author-Name-First Mehmet; Rangan Gupta; Anandamayee Majumdar
  110. Iceland: Sixth Post-Program Monitoring Discussions By International Monetary Fund. European Dept.
  111. A New Methodology for Estimating the Output Gap in the United States By Ali Alichi
  112. Search and Bargaining in the Product Market and Price Rigidities By Mirko Abbritti; Tommaso Trani
  113. Guinea: Request for Debt Relief Under the Catastrophe Containment Window of the Catastrophe Containment and Relief Trust—Staff Report; and Press Release By International Monetary Fund. African Dept.
  114. Strengthening Fiscal Frameworks and Improving the Spending Mix in Small States By Ezequiel Cabezon; Patrizia Tumbarello; Yiqun Wu
  115. External Balances, Trade and Financial Conditions By Martin D D Evans
  116. Central African Economic and Monetary Community (CEMAC): Staff Report on Common Policies and Challenges of Member Countries By International Monetary Fund. African Dept.
  117. International shocks and the Colombian economy: A Global VAR Approach By Carlos Andrés BALLESTEROS RUIZ; Javier Andrés ROJAS AGUILERA
  118. Republic of Korea: Staff Report for the 2015 Article IV Consultation By International Monetary Fund. Asia and Pacific Dept
  119. Bulgaria: 2015 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Bulgaria By International Monetary Fund. European Dept.
  120. Zambia: Selected Issues By International Monetary Fund. African Dept.
  121. It’s Not All Fiscal: Effects of Income, Fiscal Policy, and Wealth on Private Consumption By Laura Jaramillo; Alexandre Chailloux
  122. Saving in Latin America and the Caribbean: Performance and Policies By Francesco Grigoli; Alexander Herman; Klaus Schmidt-Hebbel
  123. Chad: First Review Under the Extended Credit Facility Arrangement, Request for Waivers of Nonobservance of Performance Criteria, and Request for Modification of Performance Criteria, and Augmentation of Access By International Monetary Fund. African Dept.
  124. Oman: Report on Observance of Standards and Codes (ROSC)—Data Module Volume I By International Monetary Fund. Statistics Dept.
  125. Financial Fragmentation and Economic Growth in Europe By Schnabel, Isabel; Seckinger, Christian
  126. Gender Differentials in Unemployment Ins and Outs during the Great Recession in Spain By Sara De la Rica; Yolanda F. Rebollo-Sanz
  127. Mongolia: 2015 Article IV Consultation—Staff Report; Press Release; and Statement by the Executive Director for Mongolia By International Monetary Fund. Asia and Pacific Dept
  128. Republic of Serbia: First Review Under the Stand-By Arrangement By International Monetary Fund. European Dept.
  129. Learning About Consumer Uncertainty from Qualitative Surveys: As Uncertain As Ever By Pinto, Santiago; Sarte, Pierre-Daniel G.; Sharp, Robert
  130. Côte D’Ivoire: Seventh Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria By International Monetary Fund. African Dept.
  131. The End of the Flat Tax Experiment in Slovakia By Michal Horváth; Matus Senaj; Zuzana Siebertova; Norbert Svarda
  132. Euro Area Policies: Selected Issues By International Monetary Fund. European Dept.
  133. Evolución Macroeconómica Cuantitativa de la Agricultura y Transformación Estructural 1976-2013 By Alvaro Hernando CHAVES CASTRO
  134. A Network Analysis of Sectoral Accounts: Identifying Sectoral Interlinkages in G-4 Economies By Luiza Antoun de Almeida
  135. United States: Financial Sector Assessment Program-Financial System Stability Assessment By International Monetary Fund. Monetary and Capital Markets Department
  136. Workforce location and equilibrium unemployment in a duocentric economy with matching frictions By Etienne Lehmann; Paola L. Montero Ledezma; Bruno Van der Linden
  137. Experiences with Macroprudential Policy—Five Case Studies By Salim M. Darbar; Xiaoyong Wu
  138. Portfolio Rebalancing in Japan: Constraints and Implications for Quantitative Easing By Serkan Arslanalp; Dennis P. J. Botman
  139. West African Economic and Monetary Union: Selected Issues By International Monetary Fund. African Dept.
  140. Capital controls, financial crisis and the investment saving nexus:Evidence from Iceland By Hamid Raza; Gylfi Zoega; Stephen Kinsella
  141. The Life of Australian Banknotes By Alexandra Rush
  142. On the Optimal Provision of Social Insurance: Progressive Taxation versus Education Subsidies in General Equilibrium By Krueger, Dirk; Ludwig, Alexander
  143. Crime and the Economy in Mexican States: Heterogeneous Panel Estimates (1993-2012) By Concepción Verdugo Yepes; Peter L. Pedroni; Xingwei Hu
  144. Samoa: Financial Sector Assessment Program - Banking Resolution, and Crisis Prevention and Management Frameworks—Technical Note By International Monetary Fund. Monetary and Capital Markets Department
  145. An Overlapping Generation Model of Labour Productivity and Economic Growth in Colombia By Fernando MESA PARRA
  146. IMF Surveillance in Europe By Task Force on IMF Issues of the International Relations Committee of the European System of Central; L´Hotellerie-Fallois, Pilar; Balteanu, Irina; Moreno, Pablo; Urquizu, Beatriz; Janssens, Caroline; Vincent, Evelien; Sedlacek, Petr; Brüggemann, Axel; Haupt, Felix; Keeney, Mary; Deanaz, Geneviève; Paternò, Francesco; Frost, Jon; Whitaker, Simon; McKay, Julie; Ritter, Raymond
  147. Are Labor Force Participation Rates Really Non-Stationary? Evidence from Three OECD Countries By Zeynel Abidin Ozdemir; Mehmet Balcilar; Aysit Tansel
  148. Consumo y crecimiento en América Latina y el Caribe: las luces del bienestar y las sombras de la sostenibilidad. By Andres Rius; Carolina Roman
  149. Time-varying individual risk attitudes over the Great Recession: A comparison of Germany and Ukraine By T. Dohmen; H. Lehmann; N. Pignatti
  150. Liquidity creation without banks By Simas Kucinskas
  151. Mali: Third Review Under the Extended Credit Facility Arrangement, Request for Waiver of Performance Criteria, and Request for Modification of Performance Criteria By International Monetary Fund. African Dept.
  152. The Digital Agenda of Virtual Currencies. Can BitCoin Become a Global Currency? By D'Artis Kancs; Pavel Ciaian; Rajcaniova Miroslava
  153. Fiscal Deficit and Public Debt in the Western Balkans: 15 Years of Economic Transition By Zsoka Koczan
  154. Trends in Fiscal Transparency: Evidence from a New Database of the Coverage of Fiscal Reporting By Rachel F Wang; Timothy Irwin; Lewis K Murara
  155. Albania: Fourth Review Under the Extended Arrangement and Request for Modification and Waiver of Applicability of Performance Criteria By International Monetary Fund. European Dept.
  156. Estimación de los Impactos Regionales del Programa de Inversión en Infraestructura By Gustavo Adolfo HERNANDEZ DIAZ; Norberto ROJAS DELGADILLO
  157. Brunei Darussalam: Statistical Appendix By International Monetary Fund. Asia and Pacific Dept
  158. Did the introduction of the euro lead to money illusion? Empirical evidence from Germany By Bittschi, Benjamin; Duppel, Saskia
  159. Personal bankruptcy law, debt portfolios, and entrepreneurship By Mankart, Jochen; Rodano, Giacomo
  160. Did Scarce Global Savings Finance the US Real Estate Bubble? The “Global Saving Glut” thesis from a Stock Flow Consistent Perspective By Fabian Lindner
  161. Irish Quarterly Macroeconomic Data: A Volatility Analysis By Conroy, Niall
  162. Measuring Industry Productivity Across Time and Space and Cross Country Convergence By Diewert, Erwin; Inklaar, Robert
  163. The Quest for the Holy Grail: Efficient and Equitable Fiscal Consolidation in India By Chadi Abdallah; David Coady; Sanjeev Gupta; Emine Hanedar
  164. Russian Federation: Selected Issues By International Monetary Fund. European Dept.
  165. Does Growth Create Jobs in the G-20 Economies? By Prakash Loungani; Saurabh Mishra
  166. Risk Premiums in the Cross-Section of Commodity Convenience Yields By Thomas Bollinger; Axel Kind
  167. Institutions and Growth: a GMM/IV Panel VAR Approach By Carlos Góes
  168. IMF Lending and Economic Growth: An Empirical Analysis of Ukraine By Roman Kononenko
  169. VAT efficiency in the countries worldwide By Sokolovska, Olena; Sokolovskyi, Dmytro
  170. Inequalities in Economic and Educational Status in Social Groups in India: Evidences from Village Study in Uttar Pradesh By Awasthi, I. C.; Shrivastav, Puneet Kumar

  1. By: Christopher M. Gunn; Alok Johri
    Abstract: Can variations in the expected future return on a portfolio of sovereign bonds itself have real effects on a small open economy? We build a model where banks face a capital sufficiency requirement to demonstrate that news about a fall in the expected return on a portfolio of international long bonds held by the bank can lead to an immediate and persistent fall in economic activity. Even if the news never materializes, the model can generate several periods of below steady state investment, hours worked and production followed by a recovery. The presence of long bonds in bank portfolios enable the news to have an immediate impact on bank capital via an immediate fall in bond prices. The portfolio adjustment induced by the capital sufficiency requirements leads to a rise in loan rates and tighter credit conditions which trigger the fall in activity. The model contributes to the news-shock literature by showing that imperfect signals about future financial returns can create business cycles without relying on the usual suspects: variation in domestic fundamentals such as technology shocks, preference shocks and fiscal policy. It also contributes to the emerging economy business cycle literature in that disturbances in world financial markets can lead to domestic business cycles without relying on shocks to the world interest rate or to country spreads.
    Keywords: expectations-driven business cycles, financial news shocks,financial intermediation, business cycles, small open economy, capital adequacy requirements.
    JEL: E3 E44 F4 G21
    Date: 2015–08
  2. By: International Monetary Fund. African Dept.
    Abstract: EXECUTIVE SUMMARY Context. The emergence of large fiscal and external imbalances in recent years, which led to a slowdown in growth, is putting Ghana’s medium-term prospects at risk. The Government’s efforts to achieve fiscal consolidation since mid-2013 have been undermined by policy slippages, external shocks and rising interest cost. Until mid- 2014, the net international reserves position had further weakened and the exchange rate depreciated sharply, fueling inflationary pressures. The situation has stabilized on the back of the Eurobond issued in September and a short-term loan contracted by the Cocoa Board, but public debt continued to rise at an unsustainable pace. Extended Credit Facility Arrangement (ECF). The Ghanaian authorities have requested a three-year arrangement under the ECF in an amount of SDR 664.20 million (180 percent of quota) in support of their medium-term economic reform program. Program Framework. The authorities’ three year ECF-supported program, anchored on their second Ghana Shared Growth and Development Agenda (GSGDA II), aims at a sizeable and frontloaded fiscal adjustment to restore debt sustainability, rebuild external buffers, and eliminate fiscal dominance of monetary policy, while safeguarding financial sector stability. It focuses on: ? Substantially strengthening the fiscal position by mobilizing additional revenues, restraining the wage bill and other primary spending, while making space for priority spending. The government is also taking additional adjustment measures to help offset lower-than-budgeted oil revenue. A prudent borrowing policy will complement fiscal consolidation efforts to restore debt sustainability. ? Accelerating the reform agenda: strengthening public financial management and expenditure controls, in particular cleaning-up the payroll and enhancing wage bill control; improving revenue collection through tax policy and tax administration reforms; restoring the effectiveness of the inflation-targeting (IT) framework by eliminating fiscal dominance and enhancing monetary policy operations. Risks. Risks to the program include delayed or partial implementation of policies, including next year in the run-up to elections, a slower growth recovery if the electricity crisis is not addressed quickly, and additional negative commodity price shocks. Staff supports the authorities’ request for IMF support. Forceful and sustained implementation of the program will be essential to address macroeconomic imbalances.
    Keywords: Bond markets;Debt sustainability analysis;Debt management;Economic indicators;Extended Credit Facility;Extended arrangement requests;Fiscal consolidation;Staff Reports;Press releases;Inflation targeting;Ghana;Monetary policy;Letters of Intent;debt, interest, revenue, monetary fund, tax
    Date: 2015–04–21
  3. By: Ansgar Rannenberg; Christian Schoder; Jan Strásky
    Abstract: We simulate the Euro Area's fiscal consolidation between 2011 and 2013 by employing two DSGE models used by the ECB and the European Commission, respectively. The cumulative multiplier amounts to 0.7 and 1.0 in the baseline, but increases to 1.3 with a reasonably calibrated financial accelerator and a crisis-related increase of the share of liquidity constrained households. In the latter scenario, fiscal consolidation would be largely responsible for the decline in the output gap from 2011-2013. Postponing the fiscal consolidation to a period of unconstrained monetary policy (until after the economic recovery) would have avoided most of these losses.
    Keywords: Fiscal policy simulations, fiscal consolidation, fiscal multiplier, Euro Area
    JEL: E32 E62
    Date: 2015
  4. By: Rannenberg, Ansgar (Central Bank of Ireland); Schoder, Christian (Vienna University of Economics and Business); Strasky, Jan (Organisation for Economic Co-operation and Development)
    Abstract: Since 2010, fiscal policy in the Euro Area (EA) turned progressively more restrictive.According to estimates by the European Commission (2012), spending cuts and tax increases accumulated to about 4% of annual Euro Area GDP between 2011 and 2013.The switch to fiscal austerity has been associated with a return of the EA economy to recession. The role of the fiscal consolidation in driving the Euro Area's disappointing economic performance is uncertain and disputed. This paper gauges the impact of this policy employing variants of two DSGE models used for policy analysis by the ECB (the New Area Wide Model, NAWM) and the European Commission (QUEST III). We find that, first, the simulated effect of the Euro Area's fiscal consolidation strongly depends on one's view regarding the expected persistence of the measures anticipated by the agents. If agents believe the measures to be permanent, the consolidation might even have been expansionary due to strong riccardian effects. However, it is plausible to assume that households and firms did not expect the measures to be permanent, and have a finite horizon due to some degree of myopia. We operationalize these concerns by simulating the measures as very persistent but not permanent. In this scenario, which we treat as our baseline, GDP contracts in both models, with the cumulative multiplier of the fiscal consolidation amounting to 0.7 and 1.0 over the 2011-2013 period, respectively. The government debt-to-GDP ratio declines below the non-consolidation case only after one or three years. We then investigate the impact of two plausible enhancements of the degree of financial frictions in the models. First, we add a reasonably parameterised financial accelerator along the lines of Bernanke et al. (1999). As a result, the output contraction becomes considerably bigger. Second, we allow for a plausible crisis-related increase of the share of liquidity constrained households. With both of these enhancements, the debt-to-GDP ratio increases for 4 or 5 years relative to the non-consolidation case. The cumulative multiplier equals 1.3. These results would imply that, in our baseline scenario, fiscal consolidation is responsible for between one third (NAWM) and one half (QUEST III) of the decline of the Euro Area's output gap from the beginning of 2011 until the end of the EA's recent recession in 2013, with the share rising to about 80% in the presence of enhanced financial frictions. Moreover, most of the output costs of fiscal consolidation could have been avoided if it had been postponed until the zero lower bound constraint on monetary policy was no longer binding, and under such conditions the government debt-to-GDP ratio could have been reduced much more quickly.
    Keywords: Fiscal policy simulations, fiscal consolidation, fiscal multiplier, Euro Area
    JEL: E32 E62
    Date: 2015–08
  5. By: Goodness C. Aye (Department of Economics, University of Pretoria); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Rangan Gupta (Department of Economics, University of Pretoria); Charl Jooste (Department of Economics, University of Pretoria); Stephen M. Miller (Department of Economics, University of Nevada); Zeynel Abidin Ozdemir (Department of Economics, Gazi University)
    Abstract: This study assesses how fiscal policy affects the dynamics of asset markets, using Bayesian vector autoregressive models. We use sign restrictions to identify government revenue and government spending shocks, while controlling for generic business cycle and monetary policy shocks. In addition to examining the effects of anticipated and unanticipated revenue and spending shocks, we also analyse three types of fiscal policy scenarios: a deficit-financed spending increase, a balanced budget spending increase (financed with higher taxes), and a deficit-financed tax cut (revenue decreases but government spending stays unchanged). Using South African quarterly data from 1966:Q1 to 2011:Q2, we show that a deficit spending shock does not affect house prices, but temporarily exerts a positive effect on stock prices. With a deficit-financed tax cut shock, house prices increase persistently while stock prices increase quickly, but only temporarily. A balanced budget shock permanently decreases house prices and temporarily reduces stock prices.
    Keywords: Bayesian Sign-Restricted VAR, fiscal policy, housing prices, stock prices
    JEL: C32 E62 G10 H62
    Date: 2014
  6. By: International Monetary Fund. European Dept.
    Abstract: The economy is growing strongly on account of improving domestic demand and robust exports. Fiscal policy has been supportive of the recovery and the authorities’ medium-term fiscal objective is appropriate, but fiscal framework legislation that would anchor policy is yet to be approved. The central bank’s use of an exchange rate floor as an additional instrument to achieve its inflation objective, in the context of the inflation- targeting framework, has helped stem deflationary pressures, but inflation is still well below target. The financial system is sound and resilient to shocks. The challenge for the authorities is to safeguard macroeconomic stability and create conditions for strong and sustainable growth. Policy recommendations. • Fiscal policy. Maintain a supportive fiscal stance this year, but embark on a modest and very gradual fiscal consolidation thereafter, consistent with the medium-term deficit objective. Embed this objective in a comprehensive framework to enhance its effectiveness in anchoring fiscal policy. Improve budget composition, with higher capital spending to address infrastructure needs offset by efficiency gains in current expenditure and improved revenue administration. • Monetary policy. Continue to focus on inflation targeting in policymaking and communication, and maintain supportive monetary conditions until deflation risks recede and inflation expectations become entrenched around the inflation target. Consider carefully the timing and mechanics of the eventual normalization of monetary policy. • Financial sector. Remain vigilant and be ready to address possible risks to financial stability. • Structural reforms. Remove impediments to higher potential growth, including through policies to increase labor market participation of certain segments of the population, enhance investment in human and physical capital, and improve the business climate.
    Keywords: Czech Republic;Article IV consultation reports;Economic growth;Fiscal policy;Fiscal reforms;Monetary policy;Inflation targeting;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;inflation, market, exchange, monetary fund
    Date: 2015–07–23
  7. By: Anh D. M. Nguyen; Jemma Dridi; D. Filiz Unsal; Oral Williams
    Abstract: The perception that inflation dynamics in Sub-Saharan Africa (SSA) are driven by supply shocks implies a limited role for monetary policy in influencing inflation in the short run. SSA’s rapid growth, its integration with the global economy, changes in the policy frameworks, among others, in the last decade suggest that the drivers of inflation may have changed. We quantitatively analyze inflation dynamics in SSA using a Global VAR model, which incorporates trade and financial linkages among economies, as well as the role of regional and global demand and inflationary spillovers. We find that in the past 25 years, the main drivers of inflation have been domestic supply shocks and shocks to exchange rate and monetary variables; but that, in recent years, the contribution of these shocks to inflation has fallen. Domestic demand pressures as well as global shocks, and particularly shocks to output, however, have played a larger role in driving inflation over the last decade. We also show that country characteristics matter—the extent of oil and food imports, vulnerability to weather shocks, economic importance of agriculture, trade openness and policy regime, among others, help in explaining the role of shocks.
    Keywords: Zambia;Zimbabwe;Supply and demand;Vector autoregression;Congo, Democratic Republic of the;Congo, Republic of;Econometric models;Sub-Saharan Africa;Sudan;Swaziland;Tanzania;Togo;Uganda;Rwanda;Senegal;Seychelles;Sierra Leone;South Africa;Niger;Nigeria;Mozambique;Namibia;Monetary policy;Liberia;Gabon;Gambia, The;Ghana;Guinea;Guinea-Bissau;Inflation;Kenya;Lesotho;Madagascar;Malawi;Mali;Mauritania;Mauritius;Djibouti;External shocks;Equatorial Guinea;Eritrea;Ethiopia;Benin;Angola;Central African Republic;Chad;Comoros;Botswana;Burkina Faso;Burundi;Cameroon;Global VAR (GVAR), supply, supply shocks, demand, Time-Series Models, Monetary Policy (Targets, Instruments, and Effects), General, Sub-Saharan Africa.,
    Date: 2015–08–05
  8. By: Alexei Kireyev
    Abstract: The West African Economic and Monetary Union (WAEMU) is a currency union with a fixed exchange rate and limited capital mobility and, therefore, an independent monetary policy in the short run. The Central Bank of West African States (BCEAO) is conducting the single monetary policy with the main goal of preserving price stability and supporting economic growth. However, the effectiveness of its monetary policy remains low, with a weak reaction of market interest rates and inflation to BCEAO’s policy actions. The paper concludes that, while the institutional setup and the instruments of monetary policy are adequate, the transmission mechanism of monetary policy remains constrained by liquidity management practices, shallow and segmented financial markets, and interest rate rigidities. To improve the effectiveness of monetary policy the BCEAO should be more proactive in determining the stance of fiscal policies, develop financial markets, and liberalize controlled interest rates. The BCEAO is undertaking important reforms in these directions.
    Keywords: Exchange rate regimes;Capital controls;Cabo Verde;Benin;Burkina Faso;Fixed exchange rates;Gambia, The;Ghana;Guinea;Guinea-Bissau;Monetary policy;Mali;Niger;Nigeria;Monetary transmission mechanism;Monetary policy instruments;Liberia;Senegal;Sierra Leone;Togo;West African Economic and Monetary Union;WAEMU, low-income countries, exchange rate, interest, exchange, interest rates, inflation, International Migration, Open Economy Macroeconomics,
    Date: 2015–05–05
  9. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: Outlook and risks. As Singapore prepares to celebrate its 50th anniversary in August, its economy continues to perform well. Despite the slow pace of the global recovery and a gradual decline in domestic credit growth and housing prices, projected economic growth of about 2.9 percent in 2015 is consistent with full employment and price stability. Growth is projected to slow down in the medium term, consistent with reduced reliance on foreign workers and rapid population aging. The authorities’ new growth model takes into account Singapore’s physical resource limits and aims to boost labor and land productivity. Risks to the baseline are tilted to the downside: Singapore’s highly open economy is exposed to external shocks, most notably slower global growth and the side effects from volatility in global financial markets. Domestic vulnerabilities, including elevated private indebtedness, can amplify the impact of external shocks. Policies. In January, in response to a decline in expected inflation and a more uncertain outlook for growth, the Monetary Authority of Singapore (MAS) reduced the pace of appreciation of the nominal effective exchange rate (NEER) band. The more benign near?to medium-term inflation outlook warrants the relative easing of monetary policy. The monetary policy framework is robust and flexible but rising domestic leverage and heightened global interest rate and exchange rate volatility warrant heightened vigilance in assessing the balance of forces between the various channels of monetary policy. Singapore continues to maintain high regulatory and supervisory standards. Recent macroprudential measures have contributed to smoothing the cycle for credit and house prices. The budget’s focus on boosting productivity, equality of opportunity, and inclusiveness is laudable, while the fiscal impulse is opportune given cyclical conditions. Restructuring and population aging. Building on Singapore’s success and faced with high income inequality and the physical limits of a city state, the authorities have re-engineered the country’s growth model to boost productivity while reducing reliance on foreign workers. The restructuring entails lower steady state growth and a shift in the functional distribution of income toward labor. Incentives provided for firms to increase productivity-enhancing investments and for Singaporeans to upgrade their skills should help ensure a successful transition. But slower potential growth and a lower share of profits in income could affect those investments, and gains in productivity could be realized only slowly. Flexibility in the application of foreign worker policies and continued review of incentives are warranted. The authorities are recalibrating fiscal policies with associated inter?and intra- generational impacts in order to proactively deal with Singapore’s rapid population aging, enhance inclusiveness and reduce inequality, while remaining true to the principles of individual responsibility and sound public finances.
    Keywords: Singapore;Article IV consultation reports;Economic conditions;Economic growth;Monetary policy;Macroprudential Policy;Fiscal policy;Corporate sector;Pension reforms;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;monetary fund, exchange, inflation, economic developments
    Date: 2015–07–22
  10. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: Context. Economic activity strengthened somewhat in 2014 while the external current account deficit worsened primarily as a result of Baha Mar construction-related imports. The authorities continue to make substantial progress on fiscal consolidation with successful VAT implementation in January 2015 setting the stage for continued improvements in the fiscal position. Lower oil prices helped keep inflation anchored in 2014. Still, notwithstanding the capital flow management (CFM) regime, international reserves remain low. Key policy advice: Despite the U.S. recovery and the imminent opening of the Baha Mar resort, the growth outlook remains well below pre-global crisis levels, and strong and timely measures should be implemented to strengthen competitiveness and raise potential growth. In addition, rebuilding fiscal and external buffers will be essential for sustaining macroeconomic stability: • Reigniting strong and inclusive medium-term growth. Structural reforms are needed to address longstanding competiveness issues including labor market impediments to growth. Energy sector reforms could substantially lower energy costs, boost productivity and facilitate economic diversification in the medium term. A diversification strategy should explore the potential for increasing value added in the tourism sector, including through deepening linkages with agriculture. • Rebuilding fiscal and external buffers. Notwithstanding the CFM regime, the fixed exchange rate peg constrains monetary policy, leaving fiscal policy as the main instrument for macroeconomic stabilization. Steadfast implementation of the VAT and expenditure rationalization in the context of a medium-term budgetary framework, together with public enterprise reforms, would help rebuild fiscal buffers and support international reserves. • Preserving financial sector stability. The pre-crisis credit boom has left the banking system with an overhang of non-performing loans, which will likely continue to generate headwinds for the economy. Despite this, the banking system remains very well capitalized and liquid. Measures should be put in place to resolve the debt overhang while further strengthening the regulatory and supervisory framework.
    Keywords: Bahamas, The;Article IV consultation reports;Economic growth;Fiscal consolidation;Energy sector;Currency pegs;Banking sector;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;monetary fund, debt, economic developments, deficit, oil prices
    Date: 2015–07–27
  11. By: Ricardo Lagos; Shengxing Zhang
    Abstract: We develop a model of monetary exchange in over-the-counter markets to study the effects of monetary policy on asset prices and standard measures of financial liquidity, such as bid-ask spreads, trade volume, and the incentives of dealers to supply immediacy, both by participating in the market-making activity and by holding asset inventories on their own account. The theory predicts that asset prices carry a speculative premium that reflects the asset's marketability and depends on monetary policy as well as the microstructure of the market where it is traded. These liquidity considerations imply a positive correlation between the real yield on stocks and the nominal yield on Treasury bonds---an empirical observation long regarded anomalous. The theory also exhibits rational expectations equilibria with recurring belief driven events that resemble liquidity crises, i.e., times of sharp persistent declines in asset prices, trade volume, and dealer participation in market-making activity, accompanied by large increases in spreads and abnormally long trading delays.
    JEL: D83 E31 E52 E58 G12
    Date: 2015–09
  12. By: Rafael Portillo; Yulia Ustyugova
    Abstract: Uruguay has recently reverted to a money targeting (MT) framework in the context of a disinflation strategy. We develop a quantitative model for monetary policy analysis incorporating money targets in the policy framework while also retaining a central role for interest rates in the transmission of policy. We use the model to show that tight financial conditions for a period may be necessary for inflation to converge to the middle of the target band. We also discuss various aspects of the MT framework. Two issues stand out. Excessive focus on hitting money targets can result in undesirable changes in the policy stance; while targets that incorporate elements of money demand forecasting are superior to targets that are excessively smooth or do not adjust for base effects.
    Keywords: Central banks and their policies;Uruguay;Monetary policy;Inflation targeting;Demand for money;Econometric models;Forecasting;Money Targeting, money, inflation, demand, interest rates, Monetary Policy (Targets, Instruments, and Effects), Forecasting and Simulation, Fiscal and Monetary Policy in Development,
    Date: 2015–07–23
  13. By: Sonali Das
    Abstract: This paper provides new evidence on the credit channel of monetary policy transmission in India. Using stepwise estimation of vector error correction models, the analysis finds significant, albeit slow, pass-through of policy rate changes to bank interest rates in India. There is evidence of asymmetric adjustment to monetary policy: the lending rate adjusts more quickly to monetary tightening than to loosening. In addition, the speed of adjustment of deposit and lending rates to changes in the policy rate has increased in recent years.
    Keywords: India;Lending rates;Monetary policy transmission, deposit rates, monetary policy, interest, interest rates, lending, bank interest rates, Monetary Policy (Targets, Instruments, and Effects),
    Date: 2015–06–23
  14. By: Bindseil, Ulrich; Domnick, Clemens; Zeuner, Jörg
    Abstract: In parts of the German media, with the support of a number of German economists, the ECB’s low nominal interest rate policy is criticised as unnecessary, ineffective and as expropriating the German saver. This paper provides a review of the relevant arguments. It is recalled that returns on savings are anchored to the real rate of return on capital. Good monetary policy tries to avoid being a source of disturbance in itself, and may be able to smooth the effects of temporary external shocks, but beyond that cannot structurally improve the real rate of return on capital. Against this general background, the paper critically analyses a number of recent arguments as to why low interest rate policies could actually be counterproductive. Finally, the paper reviews what can be done about the medium to long-term real rate of return on capital, which remains in any case the basic issue for the saver, focusing on the specific case of Germany. The key policies identified relate to demographics, education, labour markets, infrastructure and technology. Low growth dynamics in the coming decades and correspondingly low real rates of return on investments are not inevitable. JEL Classification: E43, E52, O40
    Keywords: growth, natural rate, real interest rate, zero lower bound
    Date: 2015–05
  15. By: Pau Rabanal; Marzie Taheri Sanjani
    Abstract: We suggest a new approach for analyzing the role of financial variables and shocks in computing the output gap. We estimate a two-region DSGE model for the euro area, with financial frictions at the household level, between 2000-2013. After joining the monetary union, a decline in some countries’ borrowing costs contributed to a credit, housing and real boom and bust cycle. We show that financial frictions amplified economic fluctuations and the measure of the output gap in those countries. On the contrary, in countries such as France and Germany, financial frictions played a minor role in output gap measures. We also present evidence of the trade-offs faced by the European Central Bank when trying to stabilize two regions in a currency union with unsynchronized economic cycles.
    Date: 2015–07–14
  16. By: Ali Alichi; Kevin Clinton; Charles Freedman; Ondra Kamenik; Michel Juillard; Douglas Laxton; Jarkko Turunen; Hou Wang
    Abstract: The Fed has taken several steps towards strengthening its monetary framework over the past several years. Those steps have supported the Fed’s efforts to stimulate the economy through forward guidance despite being constrained by having policy rates at zero. We show that an optimal control approach to monetary policy, which includes the publication of a baseline forecast and a description of the uncertainties around that outlook, combined with an improvement in the Fed’s communications toolkit, could further enhance the effectiveness of Fed policy. In the current conjuncture, such a risk management approach to monetary policy would result in both a later liftoff of policy rates and a modest, but planned, overshooting of inflation.
    Keywords: Central banks and their policies;Monetary policy;Inflation targeting;United States;Optimal Control, inflation, interest, interest rate, central bank, General,
    Date: 2015–06–24
  17. By: Stefan Laseen; Andrea Pescatori; Jarkko Turunen
    Abstract: We introduce time-varying systemic risk in an otherwise standard New-Keynesian model to study whether a simple leaning-against-the-wind policy can reduce systemic risk and improve welfare. We find that an unexpected increase in policy rates reduces output, inflation, and asset prices without fundamentally mitigating financial risks. We also find that while a systematic monetary policy reaction can improve welfare, it is too simplistic: (1) it is highly sensitive to parameters of the model and (2) is detrimental in the presence of falling asset prices. Macroprudential policy, similar to a countercyclical capital requirement, is more robust and leads to higher welfare gains.
    Keywords: Monetary policy;Endogenous Financial Risk, DSGE models, Non-Linear Dynamics, Policy Evaluation, financial sector, welfare, prices, equity,
    Date: 2015–06–30
  18. By: Pablo Anaya; Alex Pienkowski
    Abstract: This paper presents a novel approach to detail the propagation of shocks to public debt. The modeling technique involves a structural vector auto-regression (SVAR) estimator with an endogenous debt accumulation equation. It explores how the main drivers of sovereign debt dynamics—the primary balance, the interest rate, growth and inflation—interact with each other. Such analysis is particularly useful for debt sustainability analysis. We find that some interactions exacerbate the impact of shocks to the accumulation of debt, while others act to stabilize debt dynamics. Furthermore, the choice of monetary policy regime plays an important role in these debt dynamics – countries with constrained monetary policy are more at risk from changes in market sentiment and must rely much more on fiscal policy to constrain debt.
    Keywords: Euro Area;Monetary policy;Fiscal policy;Sovereign debt;Vector autoregression;debt, interest, interest rate, General, Monetary Policy (Targets, Instruments, and Effects),
    Date: 2015–06–25
  19. By: Amador-Torres, Juan; Gómez González, Jose; Ojeda-Joya, Jair; Jaulin-Mendez, Oscar; Tenjo-Galarza, Fernando
    Abstract: We compute a measure of the finance-neutral potential output for Colombia, Chile and Mexico. Our methodology is based on Borio et al (2013, 2014) and incorporates the cycle of credit, house prices and the real exchange rate on the computation of the output gap. The literature on business cycles in emerging market economies, particularly papers focusing on Latin American economies, has highlighted the importance of including shocks to the interest rate in world capital markets together with financial frictions; terms of trade fluctuations; and a procyclical government spending process. Our results show that around the financial crises of the 1990s the finance-neutral output gap behaved differently than the traditional measures observed by policymakers. In particular, gaps are higher before crises and lower after them.
    Keywords: Potential output, financial cycle, asset prices, Kalman filter
    JEL: E44 E47 E52
    Date: 2015–08–05
  20. By: International Monetary Fund. European Dept.
    Abstract: EXECUTIVE SUMMARY The economy is still fragile, but signs of stabilization are emerging. The escalation of the conflict in the East and the sharp depreciation of the hryvnia in early 2015 deepened the recession in 2015:Q1, raised inflation, and eroded further bank balance sheets. In recent months, however, signs of stabilization have been emerging. The balance of payments is in line with the program and the exchange rate has stabilized, retail hryvnia deposits are gradually increasing, the budget deficit is very low, and the pace of economic decline is moderating. The authorities have made a strong start in implementing the program. All performance criteria (PCs) for end-March 2015 and, based on preliminary information, all PCs for end-June were met. Eight benchmarks were completed, albeit four of them with a delay and two were converted into prior actions for this review. Discussions with creditors have made progress towards a debt operation that would restore fiscal sustainability. The engagement has intensified recently with direct negotiations with the ad hoc creditor committee on the authorities’ restructuring proposal. The two sides reported further steps forward in their discussions and reiterated their common objective to finalize the terms of the debt operation as soon as possible. Policy discussions focused on strengthening macroeconomic stability and sustaining progress in structural reforms. Supporting policies in the period ahead aim to: (i) continue the current prudent monetary policy, maintain exchange rate flexibility, and improve banks’ financial health; (ii) strengthen public finances, via fiscal consolidation and Naftogaz’s reform, while revamping the social safety net; and (iii) advance structural reforms, specifically the anti-corruption framework and judicial system, overhaul the State- Owned Enterprise (SOE) sector, and improve business climate. In view of the authorities’ performance under the program, their policy commitments for the period ahead, and progress toward a debt operation in line with its stated objectives, staff recommends the completion of the first review. The purchase released upon completion of the review would be in the amount equivalent to SDR 1,182.1 million.
    Keywords: Staff Reports;Ukraine;Press releases;Monetary policy;Fiscal policy;Fiscal reforms;Letters of Intent;Energy sector;Extended arrangement reviews;Debt sustainability analysis;Economic indicators;Banking sector;Balance of payments statistics;debt, deposits, exchange, inflation, exchange rate
    Date: 2015–08–04
  21. By: International Monetary Fund. African Dept.
    Abstract: KEY ISSUES Context. The region continued to experience strong growth in 2014, led by the continued economic expansion in Cote d’Ivoire. The outlook is for further strong growth, subject to a range of downward risks, in particular political instability ahead of upcoming elections in several countries, and security issues in Mali and Niger. With an elevated fiscal deficit exerting pressure on the balance of payments and the regional financial market, delays in fiscal consolidation or structural reforms pose the main medium-term risks. Policy recommendations: • Fiscal consolidation. Safeguarding external stability in the region will require governments to adhere to their budget deficit reduction plans while maintaining public investment efforts, which will require increasing tax revenue and controlling current expenditure. • Monetary policy. Macroeconomic conditions do not warrant a tightening of monetary policy at this juncture. However, if fiscal deficits do not decline as envisaged, the BCEAO should consider increasing its policy rates. In the mean time, the BCEAO should very closely follow the evolution of the macro-prudential risks flowing from its sharp increase in commercial bank refinancing. • Financial stability. The WAEMU authorities should enforce existing prudential rules and raise standards to international best practice. Ongoing reforms go in the right direction but need to be accelerated. • Structural transformation and regional integration. Policies to promote structural transformation should focus on addressing weaknesses, such as the lack of education and training, finance, and supportive regulatory environments. Countries should refrain from using the possibility to deviate from the common external tariff of the Economic Community of West African States (ECOWAS) in force since January 1, 2015, in order to protect the gains from regional integration in WAEMU.
    Keywords: Fiscal consolidation;Economic indicators;Bank supervision;Economic growth;Fiscal reforms;Fiscal policy;Monetary policy;Press releases;Staff Reports;West African Economic and Monetary Union;West Africa;monetary fund, deficit, central bank, security
    Date: 2015–04–13
  22. By: Bernard Laurens; Kelly Eckhold; Darryl King; Nils Øyvind Mæhle; Abdul Naseer; Alain Durré
    Abstract: Countries with evolving monetary regimes that decide to embark on “the Journey to inflation targeting†may not be able to adopt a full-fledged inflation targeting regime immediately. Those countries would be better off adopting transitional arrangements that take advantage of the informational content of monetary aggregates, developing an economic analysis capacity, and concentrating on monetay operations aimed at steering money market interest rates. This approach would allow the central bank to buy time for developing the building blocks for effective monetary policy, support transparent central bank communication, and limit the potential for undesirable outcomes along the road.
    Keywords: Monetary policy;central bank, exchange rate, interest rates, central banks, General,
    Date: 2015–06–25
  23. By: Benjamin Lester (Federal Reserve Bank of Philadelphia); Roc Armenter (Federal Reserve Bank of Philadelphia)
    Abstract: We provide a framework to understand the factors affecting current short-term interest rates in the federal funds market given the presence of excess reserves and liquidity facilities. The key ingredients of our model are as follows. There is a central bank that operates two facilities: one pays interest on excess reserves to qualified depository institutions (DIs), and another provides a positive rate of return for overnight reverse repurchase agreements. The latter (ON RRP) rate is lower than the former (IOER) rate, but is available to financial institutions with excess cash that do not qualify as DIs. Hence, there is an arbitrage opportunity: DIs should be willing to borrow cash at a rate below the IOER rate and pocket the difference. However, there are two potential frictions in this inter-bank market. First, we assume that the market is not perfectly competitive, but rather characterized by search frictions in order to capture the ``over-the-counter'' nature of the fed funds market. The second key friction in our model is that DIs incur balance sheet costs when they accept deposits from lenders; these costs capture both the direct costs of a DI expanding its balance sheet, like FDIC fees, as well as the indirect costs associated with requirements on capital and leverage ratios.
    Date: 2015
  24. By: International Monetary Fund. European Dept.
    Abstract: Context. The recovery is strengthening, underpinned by lower oil prices and the ECB’s<BR>expanded asset purchase program. But the medium-term outlook remains weak, weighed down by the <BR>legacies of insufficient demand, lagging productivity, and weak bank and corporate balance sheets. Policies. A concerted, collective effort is needed to sustain the recovery, avoid overburdening <BR>monetary policy, and lift potential growth over the medium term, which would have positive <BR>spillovers for the rest of the world: Demand support. Quantitative easing (QE) has boosted confidence and improved financial conditions. <BR>The ECB’s clear communication to stay the course on QE until inflation is on a sustained adjustment <BR>path will help anchor expectations. Countries should adhere to the SGP, but those with fiscal space <BR>should use it to support investment and structural reforms. Balance sheet repair. High non-performing loans (NPLs) in some banks are eroding profitability and <BR>discouraging new lending. Complementary policies are needed to incentivize NPL resolution through <BR>strengthened prudential supervision, insolvency reforms, and development of distressed debt <BR>markets. Asset management companies (AMCs) could help banks to offload NPLs and assist with <BR>corporate<BR>restructuring.<BR>Productivity-enhancing structural reforms. Labor and product market reforms<BR>should be combined with faster implementation of the Services Directive, further improvements of <BR>insolvency regimes, and a greater push toward a single market in capital, transport, energy, and <BR>the digital economy. A capital markets union would help diversify funding sources and reduce <BR>reliance on bank lending. Better economic governance. A more effective and simpler governance framework, including a move towards "outcome-based" benchmarking, could help advance <BR> <BR>structural reforms, while the fiscal framework could be simplified and strengthened.  
    Keywords: Article IV consultation reports;Economic recovery;Demand;Fiscal policy;Fiscal reforms;Banking sector;Bank supervision;European Central Bank;Economic indicators;Statistics;Data quality assessment framework;Staff Reports;Press releases;Euro Area;inflation, market, investment, monetary fund, balance sheet
    Date: 2015–07–27
  25. By: Gadatsch, Niklas; Stähler, Nikolai; Weigert, Benjamin
    Abstract: In this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of observed imbalances in the Euro Area. Our simulations within a two-country monetary union DSGE model show that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area. Further simulations highlight the importance of increased savings preferences in Germany to explain the latter.
    Keywords: Fiscal Policy,Labor Market Reforms,DSGE Modeling,Macroeconomics
    JEL: H2 J6 E32 E62
    Date: 2015
  26. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: Backdrop and Outlook. Panama’s economic growth is slowing towards its medium-term potential and is expected to remain in the 6–7 percent range over the next 5 years. Inflation has been declining due to lower oil prices and price controls imposed on some food items in July 2014. The external current account deficit remains elevated, with foreign direct investment as the main source of financing, but should moderate over time as investment winds down and the corresponding projects start generating exports. Risks. A globally integrated economy brings substantial benefits to Panama, but also makes it vulnerable to external shocks to global growth, trade, and financial markets. However, strong fundamentals and the room to implement a countercyclical fiscal response would mitigate the impact of such external shocks. Delayed reforms to financial transparency are an important risk that could restrict access to global capital and the international payments system. Policy advice. It is essential to finalize the strengthening of the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework in order to comply with the international standard. The fiscal framework needs to be strengthened to serve as a solid medium-term anchor. In particular, fiscal buffers should be enhanced to cope with risks and expected or potential liabilities. In parallel, the pension system needs to be reformed, notably to address the large unfunded pension liabilities. Financial sector reforms should be geared towards implementing fully the remaining recommendations of the 2011 Financial Sector Assessment Program (FSAP), including establishing a facility for the provision of temporary liquidity to banks, improving the monitoring of external and systemic risks, upgrading the legislation on non-bank financial intermediaries, and developing further the macroprudential policy framework along with key instruments. Further investment in training, education, and healthcare will raise labor productivity and promote sustained and more inclusive growth.
    Keywords: Article IV consultation reports;Fiscal policy;Anti-money laundering;Combating the financing of terrorism;Banking sector;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Panama;
    Date: 2015–08–19
  27. By: Hashmat U. Khan (Department of Economics, Carleton University); Christopher R. Knittel (Massachusetts Institute of Technology); Konstantinos Metaxoglou (Department of Economics, Carleton University); Maya M. Papineau (Department of Economics, Carleton University)
    Abstract: Carbon dioxide emissions are highly correlated with cyclical fluctuations in the U.S. economy; they increase during booms and fall during busts. We examine this relationship focusing on the sources of business cycles identified using structural vector autoregression methodologies. Using data for 1973–2012, we find that emissions fall after unanticipated technology and investment shocks, as well as anticipated technology shocks. Emissions, however, increase after an anticipated investment shock. Our findings have two implications for the emerging literature that examines the optimality of environmental policy using dynamic stochastic general equilibrium models with unanticipated technology shocks. First, the assumption that unanticipated technology shocks cause carbon emissions to move with the business cycle has little support in the data both at the aggregate and the state-level. Second, identifying the shocks that explain procyclical carbon emissions is an important first step for crafting effective environmental policy over the business cycle—an anticipated investment shock is a candidate.
    Keywords: structural shocks, business cycles, carbon emissions, environment
    JEL: E32 Q58 Q54
    Date: 2015–08–31
  28. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: This paper discusses the Kyrgyz Republic’s Request for a Three-year Arrangement Under the Extended Credit Facility (ECF). Performance under the previous ECF arrangement, which expired last July, was good. Macroeconomic stability was restored, fiscal consolidation was stronger than planned, monetary policy was enhanced through a new interest rate-based framework, and supervision was strengthened in the financial sector. Although performance under the last ECF arrangement was good, new challenges have emerged, and some key reforms have yet to be implemented. The IMF staff supports the authorities’ request for a three-year arrangement under the ECF.
    Keywords: Kyrgyz Republic;debt, investment, monetary fund, public debt, debt management
    Date: 2015–05–14
  29. By: Michal Andrle; Michael Kumhof; Douglas Laxton; Dirk Muir
    Abstract: The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region DSGE model developed by the Economic Modeling Division of the IMF for policy and scenario analysis. This paper compares two versions of GIMF, GIMF with a conventional financial accelerator, where bank balance sheets do not play a prominent role, and GIMF with both a financial accelerator and a fully specified banking sector that can make lending losses, and that is regulated according to Basel-III. We illustrate the comparative macroeconomic properties of both models by presenting their responses to a wide range of fiscal, demand, supply and financial shocks.
    Keywords: Macroprudential Policy;Multi-Region DSGE Models, Financial Accelerator, Macro-Financial Linkages, banks, bank, capital, lending, interest, Other,
    Date: 2015–07–10
  30. By: Alok Johri; Muhebullah Karimzada
    Abstract: We incorporate shocks to the efficiency by which firms learn from production activity and accumulate knowledge into an otherwise standard real DSGE model with imperfect competition. Using real aggregate data from the United States and Bayesian inference techniques, we find that learning efficiency shocks are an important source of observed variation in the growth rate of aggregate consumption and hours worked in post-war US data. The estimated shock processes suggest much less exogenous variation in preferences and total factor productivity are needed by our model to account for the joint dynamics of consumption and hours. This occurs because learning efficiency shocks induce shifts in labour demand uncorrelated with current TFP, a role usually played by preference shocks. At the same time, knowledge capital acts like an endogenous source of productivity variation in the model. Measures of model fit prefer the specification with learning efficiency shocks.
    Keywords: business cycles, learning-by-doing, learning efficiency shocks, knowledge capital.
    JEL: E32
    Date: 2015–08
  31. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Outlook and risks. Growth is recovering gradually from natural disasters and inflation remains subdued. The current account deficit is expected to narrow on lower international oil prices and a planned fiscal consolidation. The main external risk is the occurrence of another natural disaster in the presence of already high public debt and vulnerabilities in financial institutions. The main domestic risks center around a delay in rebuilding macroeconomic buffers, in particular through fiscal consolidation, reforms of public financial institutions and financial oversight. Improving financial resilience. A recent financial sector assessment program (FSAP) mission identified risks in some commercial banks and public financial institutions (PFIs). The role of PFIs needs to be refocused to reduce contingent liabilities for public finances and to support the development of private financial markets. Regulation and supervision of financial institutions needs to be improved to reduce the risk of an adverse feedback loop from banks and PFIs to the public finances in case of another external shock. Rebuilding macroeconomic buffers. A gradual fiscal consolidation is planned to reduce public debt to the target of 50 percent of GDP by 2020, mainly through improvements in revenue and a reduction in current expenditure. While there is no significant evidence of misalignment, and reserves are adequate by standard metrics, a stronger external position with higher reserves would provide greater resilience. Boosting growth. The authorities’ structural reform initiatives emphasize a revitalization of agriculture and food processing, tourism, and an enabling environment for business. Reforms to SOE governance are beginning to bear fruit, but the government should stay the course in planned privatizations and amendments to legislation to reduce the burden of state-owned enterprises (SOEs) on the public finances. Improvements in financial infrastructure will improve the flow and allocation of credit.
    Keywords: Samoa;debt, financial institutions, monetary fund, public debt, reserves
    Date: 2015–07–20
  32. By: Sidibe, Tidiani
    Abstract: The debate on the relevance of monetary cooperation agreements with France was back in the saddle by former Malian Prime Minister Moussa MARA July 23, 2015 during a radio broadcast; and Chadian President Idriss Deby Itno during the 55th anniversary of his country's 2015 Tuesday, August 11 The latter threw a big spanner in the franc zone, arguing that currency allows us to develop. Also, some harsh criticism, consider that the CFA franc, pegged to a strong euro hampers the competitiveness of our exports of raw materials quoted in dollars or pounds on the main financial centers in New York, London. This article shows the opposite, highlighting the arguments of stability and credibility enjoyed by the CFA franc. Indeed, the real effective exchange rate (REER) of the CFA franc jouie good parity level relative to trading partners, which means that the CFA franc is neither undervalued nor overestimates. Member countries become more competitive. The foreign reserves of the central banks (BCEAO and BEAC) represented the end of December 2014, only 4.9 months of imports. Monetary cooperation with France is not a zero sum game, it's a win-win partnership. Priority should be given to macroeconomic convergence.
    Keywords: Zone franc, central bank , currency, monetary maturity, foreign exchange reserves, real effective exchange rate ( REER) , exchange parity, unlimited convertibility guarantee, transaction accounts , devaluation , monetary policy, opportunity cost , common currency ECOWAS.
    JEL: E52 E58
    Date: 2015–08–25
  33. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: EXECUTIVE SUMMARY The economy is recovering and the outlook is favorable but still subject to significant risks. After slowing to below 2½ percent in 2014, growth is expected to be close to 5 percent in 2015, boosted by a strong agricultural output and a gradual acceleration of activity in other sectors. Fiscal policy is on track to achieve the annual deficit objective of 4.3 percent of GDP. The external position has improved rapidly, benefiting from lower oil prices and strong export performance. Inflation remains low. However, more remains to be done to reduce unemployment, especially among the youth. Assuming steadfast implementation of reforms, growth should gradually accelerate over the medium term. However, the outlook remains subject to the risks of a structurally weak growth in key advanced economies, tighter or more volatile global financial conditions, and increased volatility of energy prices. Important progress has been made on key reforms; sustaining these efforts will be important to foster higher and more inclusive growth. Significant progress was made in reforming the subsidy system, thereby reducing its costs and associated fiscal risks. At the same time, social programs on health and education were expanded. The adoption of the new organic budget law in May 2015 was a crucial step in improving the fiscal framework, while progress has also been made in upgrading the financial policy framework. Timely reform of the pension system is needed to ensure its viability while extending its coverage. Sustaining efforts to improve the business environment, competition, governance and transparency, as well as the functioning of the job market and the quality of education and vocational training, will also be important for increasing competitiveness, growth, and employment. The program remains on track and Morocco continues to meet the PLL qualification criteria. Both March 2015 quantitative indicative targets were met comfortably. Morocco continues to perform strongly in three out of the five PLL qualification areas, while not substantially underperforming in the fiscal and external areas. Staff recommends the completion of the second review under the arrangement.
    Keywords: Precautionary and Liquidity Line;Fiscal policy;Public debt;Budgetary reforms;Fiscal reforms;Monetary policy;Bank supervision;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Morocco;
    Date: 2015–07–30
  34. By: Christian Schoder
    Abstract: A Dynamic Stochastic Labor-Market Disequilibrium (DSLMD) model is proposed for Keynesian business cycle analysis. It shares the type of micro-foundation known from neoclassical Dynamic Stochastic General Equilibrium (DSGE) models but characterizes economic mechanisms consistent with Traditional Post-Keynesian (TPK) models. Wage inflation is perceived as a non-market-clearing policy variable which may be subject to a collective Nash bargaining process with the state of the labor market affecting the relative bargaining power. The core insights are twofold: First, apart from assumptions regarding expectation formation, the DSGE-type of microfoundation is, to a considerable extent, consistent with the behavioral hypotheses underlying TPK models. Second, the economy characterized by the DSLMD model is post-Keynesian rather than neoclassical.
    Keywords: Dynamic stochastic labor-market disequilibrium, dynamic stochastic general equilibrium, post-Keynesian economics, micro-foundations
    JEL: B41 E12 J52
    Date: 2015
  35. By: International Monetary Fund. African Dept.
    Abstract: The economic outlook remains positive. Growth is expected to reach 7 percent in 2015 and inflation to remain low. Substantial policy adjustment is underway to respond to slippages around the elections and new balance of payment pressures from low commodity prices. Fiscal adjustment, greater exchange rate flexibility and stronger liquidity management are essential to preserve macroeconomic stability and continue to attract foreign investment to support growth, including in the oil and gas sector where projected investments could reach $100 billion over the next decade.
    Keywords: Policy Support Instrument;Economic growth;Fiscal policy;Fiscal reforms;Monetary policy;Economic indicators;Balance of payments statistics;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Performance criteria modifications;Mozambique;inflation, exchange, reserve, debt, investment
    Date: 2015–08–04
  36. By: BLINOV, Sergey
    Abstract: Savings are a huge boon for the economy. This means both growth today and prospects for growth tomorrow. This is both an investment resource and a medicine for inflation. However, mistakes made in managing the savings by economic authorities, may turn everything upside down and then the savings become a cause of inflation and many other economic woes. This is exactly what happened in the far-off 1992 in Russia. Two approaches: reliable tools and advantages of the bond type form of savings would enable Russia to quickly create a significant stock of «long» money and increase the GDP and, at the same time, significantly reduce inflation.
    Keywords: savings, inflation, shock therapy, Russia
    JEL: E20 E21 E31 E32 E52 E65 N10
    Date: 2015–09–07
  37. By: Nir Jaimovich; Sergio Rebelo; Arlene Wong
    Abstract: We document two facts. First, during recessions consumers trade down in the quality of the goods and services they consume. Second, the production of low-quality goods is less labor intensive than that of high-quality goods. So, when households trade down, labor demand falls, increasing the severity of recessions. We find that the trading-down phenomenon accounts for a substantial fraction of the fall in U.S. employment in the recent recession. We study two business cycle models that embed quality choice and find that the presence of quality choice magnifies the response of these economies to real and monetary shocks.
    JEL: E1 E2 E3
    Date: 2015–09
  38. By: International Monetary Fund. European Dept.
    Abstract: This 2015 Article IV Consultation highlights that Belarus continues to be highly vulnerable to economic shocks, as was illustrated by the turbulence in foreign exchange and debt markets in late 2014. Frequent bouts of expansionary macroeconomic policies, in a context of deep structural rigidities, have fueled inflation and external imbalances and left Belarus dependent on ad hoc external support. In 2015, growth has slowed sharply as high uncertainty, reductions in real incomes, administrative measures, and declining trade with Russia weighed on activity. The outlook is for a recession and continued external pressures. With Russia in a downturn, the Belarusian economy is projected to contract by 2.25 percent in 2015, led by falling exports.
    Keywords: Belarus;exchange, exchange rate, inflation, national bank, reserves
    Date: 2015–05–29
  39. By: International Monetary Fund. European Dept.
    Abstract: This 2015 Article IV Consultation highlights that the ongoing upturn in Germany is benefiting from the euro depreciation and lower energy prices, and is underpinned by a healthy fiscal position and sound corporate and household balance sheets. Employment growth has been robust, supported by strong immigration. The unemployment rate hit an additional post-reunification low at 4.7 percent. The oil price drop brought inflation temporarily close to zero, which has contributed to lift real wage growth to a 20-year high. The current moderate growth momentum is expected to continue as robust real wages buoy private consumption and euro depreciation buttresses exports, opening the way for a recovery in machinery and equipment investment.
    Keywords: Germany;investment, market, monetary fund, labor market, interest
    Date: 2015–07–15
  40. By: Alexander Herman; Deniz Igan; Juan Sole
    Abstract: This paper exploits the Financial Accounts of the United States to derive long time series of bank and nonbank credit to different sectors, and to examine the cyclical behavior of these series in relation to (i) the long-term business cycle, (ii) recessions and recoveries, and (iii) systemic financial crises. We find that bank and nonbank credit exhibit different dynamics throughout the business cycle. This diverging cyclical behavior of output and bank and nonbank credit argues for placing greater emphasis on sector-specific macroprudential measures to contain risks to the financial system, rather than using interest rates to address any vulnerabilities. Finally, we examine the role of bank and nonbank credit in the creation of financial interconnections and illustrate a method to conduct macro-financial stability assessments.
    Keywords: Financial intermediation;United States;Macro-financial linkages, Liquidity transformation, Nonbank financial institutions, credit, banks, pension funds, bank, financial accounts, Financial Markets and the Macroeconomy, Monetary Policy (Targets, Instruments, and Effects),
    Date: 2015–06–30
  41. By: International Monetary Fund. African Dept.
    Abstract: EXECUTIVE SUMMARY Context: A series of coups d’état since independence have resulted in chronic political instability and deterred economic and social progress. Guinea-Bissau has re-initiated progress since the assumption of office of the current inclusive government in mid-2014. The economy is now recovering after a decline in 2012 and marginal growth in 2013. Inflation remains low, and socio-political stability seems achievable. The coup d’état of April 2012 stalled implementation of the three-year Extended Credit Facility (ECF)- supported program approved by the Board in May 2010, and the arrangement lapsed subsequently. The Fund’s support under the Rapid Credit Facility (RCF) disbursement of 2014 and the authorities’ commitment to reforms have re-ignited donor confidence. Article IV Discussions. Policy discussions focused on measures to overcome fragility; fiscal consolidation and public financial management reforms; restoring financial stability; borrowing policies and long-term debt sustainability; private sector development and structural reforms to enhance inclusive growth prospects. The Proposed Program. The authorities’ development program, anchored on the Strategic Plan for 2014–18, aims to consolidate the fiscal position through better expenditure management and enhanced revenue mobilization, deepen institutional reform, mitigate vulnerabilities, and develop the private sector to support growth and employment. The program focuses on improving the policy framework by addressing governance and security issues, strengthening budgetary transparency as well as public investment and debt management, and improving compilation of statistics. Structural benchmarks focus on these issues while QPCs include a floor on revenues collection and a ceiling on net credit to government (the anchor of the program). Request for an Extended Credit Facility Arrangement. To support their medium-term economic reform program, the authorities request a three-year arrangement under the ECF in an amount equivalent to SDR 17.04 million (120 percent of quota). Risks to the program include the still fragile political situation, which could delay implementation of reforms, adverse terms of trade developments, and weakening donor confidence, and the heightened risk of incursion of the Ebola virus from neighboring countries.
    Keywords: Guinea-Bissau;debt, security, monetary fund, economic developments, tax
    Date: 2015–07–21
  42. By: Abdul Abiad; Davide Furceri; Petia Topalova
    Abstract: This paper provides new evidence of the macroeconomic effects of public investment in advanced economies. Using public investment forecast errors to identify the causal effect of government investment in a sample of 17 OECD economies since 1985 and model simulations, the paper finds that increased public investment raises output, both in the short term and in the long term, crowds in private investment, and reduces unemployment. Several factors shape the macroeconomic effects of public investment. When there is economic slack and monetary accommodation, demand effects are stronger, and the public-debt-to-GDP ratio may actually decline. Public investment is also more effective in boosting output in countries with higher public investment efficiency and when it is financed by issuing debt.
    Keywords: Econometric models;Developed countries;Public investment;Public investment;Infrastructure;OECD;Fiscal policy;Time series;Growth, Debt, investment, private investment, capital, Demand and Supply, Energy and the Macroeconomy, Government Policy, Debt.,
    Date: 2015–05–04
  43. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: KEY ISSUES Context. Donor-financed large infrastructure projects, increased public spending, and a pick-up in credit to households have boosted real GDP growth to close to 4 percent in 2014 and to about 3 percent in 2015. Inflation remains low, underpinned by lower food and commodity prices. Steps are being taken to reduce the many hurdles to private growth that Kiribati faces, among which are high transportation and communication costs and an increasing impact of climate change. Fiscal policy. The fiscal outlook has improved, but further efforts are needed to ensure sustainability. The recurrent balance was in large surplus in 2014 and is expected to remain positive in 2015, reflecting high revenue from license fees, and notwithstanding a large increase in expenditures. But under the historic pace of spending the sovereign wealth fund (Revenue Equalization Reserve Fund—RERF) would be depleted in about 20 years. Ensuring sustainability requires containing nominal expenditure growth to around 1½ per annum over the next five years (after accommodating climate-change-related costs), with transparent and symmetric transfers and withdrawals from the RERF around this path. Structural reforms. There is a consensus among donors that significant progress has been achieved. The State-Owned Enterprise (SOE) Reform Act is being implemented in a satisfactory way, as illustrated by the recent successful privatization of the telecommunication company. Key outstanding issues include further reforming the energy and copra sectors and improving the investment climate.
    Keywords: Article IV consultation reports;Fiscal policy;Private sector;Value added tax;Fiscal reforms;Public enterprises;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Kiribati;
    Date: 2015–07–29
  44. By: International Monetary Fund. African Dept.
    Abstract: This 2015 Article IV Consultation highlights that Uganda’s recent economic performance has been favorable. Real GDP growth is projected at 5.24 percent for FY2014/15 supported by a fiscal stimulus and a recovery in private consumption. Annual core inflation increased to 4.75 percent in May, from very depressed levels, mainly fueled by the shilling depreciation pass-through. The current account deficit is set to widen to about 9 percent of GDP reflecting increasing capital goods imports, but international reserves remain adequate. The outlook is promising. Growth is estimated at 5.75 percent in FY2015/16 and an average 6.25 percent over the medium-term.
    Keywords: Economic indicators;Debt sustainability analysis;Article IV consultation reports;Balance of payments statistics;Banking sector;Letters of Intent;Millennium Development Goals;Monetary policy;Infrastructure;Fiscal policy;Uganda;Staff Reports;Policy Support Instrument;Press releases;Public investment;inflation, investment, debt, instrument, revenue
    Date: 2015–07–07
  45. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: Iraq is facing a double shock arising from the ISIS insurgency and the sharp drop in global oil prices. The conflict is hurting the non-oil economy through destruction of infrastructure and assets, disruptions in trade, and deterioration of investor confidence. The impact of the oil price decline—already felt in 2014—will fully unfold in 2015, affecting the budget, the external sector, and medium-term growth potential. The authorities are responding to the crisis through mix of fiscal adjustment and financing, maintaining their commitment to the exchange rate peg. Rapid Financing Instrument: To help address the present and urgent balance of payment and budget needs triggered by the ISIS insurgency and the collapse in oil prices, the authorities have requested financial assistance under the Rapid Financing Instrument (RFI) for 50 percent of quota (SDR 594.2 million).<BR>Outlook and Risks: Assuming a resolution of the conflict in the coming years, the baseline medium-term outlook still looks positive, even though it would be significantly less favorable than at the time of the 2013 Article IV report. Under much improved security conditions, the macroeconomic scenario would continue to be driven by the expansion in oil production and non-oil sector growth, assuming the implementation of structural reform to diversify the economy and support private sector development. But risks remain very high, arising primarily from a worsening of the conflict, political tensions, and poor policy implementation.
    Keywords: Article IV consultation reports;External shocks;Oil prices;Fiscal risk;Financial risk;Fiscal reforms;Banking sector;Economic indicators;Balance of payments statistics;Letters of Intent;Rapid Financing Instrument;Staff Reports;Press releases;Iraq;
    Date: 2015–08–18
  46. By: Marcin Kolasa (National Bank of Poland); Krzysztof Makarski (National Bank of Poland); Michal Brzoza-Brzezina (National Bank of Poland)
    Abstract: This paper checks how international spillovers of shocks and polices are modified when banks are foreign owned. We build a two-country DSGE model with banking sectors that are owned by residents of one (big and foreign) country. Consistently with empirical findings we find that foreign ownership of banks amplifies spillovers from foreign shocks. Moreover, it also strenghtens the international transmission of monetary and macroprudential policies. Finaly, we replicate the financial crisis in the euro area and show how, by preventing bank capital outflow in 2009 Polish regulatory authorities managed to reduce its spillover to Poland. We also show that under foreign bank ownership such policy is strongly prefered to a recapitalization of domestic banks.
    Date: 2015
  47. By: International Monetary Fund. European Dept.
    Abstract: This 2015 Article IV Consultation highlights that Latvia’s strong recovery has recently slowed in the face of sluggish growth in the euro area and deteriorating economic conditions in Russia amid rising geopolitical tensions. GDP growth decelerated to 2.4 percent in 2014 reflecting weak demand and the prolonged closure of a steel manufacturer. In 2015, the weak external environment, particularly the sharp slowdown in Russia, will continue to weigh on exports and investment. This is expected to be mitigated, but not fully offset, by higher disposable income owing to lower oil prices and robust real wages, the reopening of the steel manufacturer, and the accommodative monetary stance of the European Central Bank.
    Keywords: Latvia;inflation, market, deposits, monetary fund, investment
    Date: 2015–05–04
  48. By: International Monetary Fund. European Dept.
    Abstract: This Selected Issues paper employs a suite of models to determine the main drivers of inflation in Poland. Inflation in Poland has stayed below the lower bound of the target band for about two years with external shocks adding to downward pressure during 2014. The paper provides a range of inflation forecasts to assess the likelihood of protracted low inflation. The paper considers the main factors underlying recent inflation developments and assesses the importance of first-round indirect and second-round effects of external shocks for headline inflation. Using a variety of models, the paper also provides possible forecast paths for inflation in Poland.
    Keywords: Poland;inflation, price, prices, price inflation, expectations
    Date: 2015–07–14
  49. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: KEY ISSUES Context. The new government that came to power in June 2014 inherited serious fiscal and external payments problems, including arrears to the Fund and other creditors, and unresolved banking sector problems. Moreover, public debt remains at an unsustainable level of close to 100 percent of GDP, while economic activity has been weak with output still well below the level reached at the time of the 2008/09 global financial crisis. Main policy recommendations • Implement fiscal measures equivalent to 2.8 percent of GDP in 2015 to tackle cash flow problems and achieve an underlying primary surplus of 3.0 percent of GDP by 2016 to address debt sustainability challenges. Underpin measures with structural fiscal reforms. • Use Citizenship by Investment Program revenues to pay down arrears and debt and fund bank resolution. The program should be managed in line with the high standards of governance and transparency set out in the law. • Move expeditiously as planned with the resolution of ABI Bank and support initiatives underway to strengthen the regional bank resolution framework, in particular, the passage of needed legislative reforms. • Improve competitiveness by moderating labor costs; increasing energy efficiency, including by better performance of the state-owned utility company; and improving the investment climate. Authorities’ views. The authorities broadly agreed with staff’s assessment of the economic situation and risks, and its recommendations to reduce fiscal vulnerabilities and strengthen the banking system. They were more optimistic about growth prospects for 2015 based on expectations for substantial FDI. They are opposed to increases in taxes and plan to focus fiscal efforts on cutting recurrent spending. On bank resolution, they wish to work closely with the Fund and World Bank to speedily address outstanding problems. They paid the arrears to the Fund and committed to timely servicing of Fund obligations. Data provision. Data provision is adequate for surveillance and post-program monitoring although significant areas for improvement remain, in particular on labor market statistics, measurement of arrears, financial information on state-owned enterprises, and national accounts by expenditure components.
    Keywords: Antigua and Barbuda;debt, tax, arrears, monetary fund, banking system
    Date: 2015–07–17
  50. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: This 2015 Article IV Consultation highlights that a drought that affected agricultural output slowed Haiti’s GDP growth to 2.7 percent in FY2014, but inflation remained in the mid-single digits. The overall fiscal deficit of the central government remained high, in part owing to one-off investment related to Hurricane Sandy. International reserves remained appropriate at about 5 months of imports. The implementation of structural reforms to support growth underpins the medium-term outlook, which is nonetheless subject to downside risks. GDP growth in FY2015 is expected to be between 2–3 percent, and to increase to 3–4 percent in the medium term.
    Keywords: Haiti;poverty, macroeconomic stability, debt, deficits, monetary fund
    Date: 2015–06–24
  51. By: International Monetary Fund. European Dept.
    Abstract: This 2015 Article IV Consultation highlights that a solid economic recovery in France is under way. The economy is expected to expand by 1.2 percent in 2015, supported by an accommodative external environment. Sharply lower oil prices, a depreciated euro, low interest rates on account of quantitative easing, and the recovery in other euro area countries should underpin household consumption, lift export growth, and eventually foster a rebound in investment. The fiscal strategy, set out in the current multi-year budget law and the 2015 Stability Program, aims to bring the headline deficit below 3 percent of GDP by 2017, with a gradual adjustment based exclusively on spending containment.
    Keywords: France;inflation, deficit, expenditure, monetary fund, market
    Date: 2015–07–10
  52. By: Turhan, Ibrahim M.
    Abstract: The world has been struggling with the economic and financial crisis for the last seven years and yet, in spite of all efforts several times we have so far witnessed hopes have been faded away. the level of financial integration of global markets, unprecedentedly high covariance between asset classes, interdependence of global systemically important financial institutions, and cross-border business models that has already created international or rather multinational companies and value chains aggravate the complexity of situation. Monetary policy being unsufficient to solve the problems, fiscal policy option deserves to be reconsidered. However the critical issue is the allocation of limited fiscal resources to promote growth in a sustainable way.
    Keywords: Crisis, market volatility, fiscal policy
    JEL: E6 G0 O3
    Date: 2015–09–07
  53. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: This 2015 Article IV Consultation highlights that Peru remains one of the best performing economies in Latin America, with solid macroeconomic policies and fundamentals and visible gains in poverty reduction. However, like most of the region, Peru faced a challenging external environment in 2014. Lower metal prices and weaker demand from trading partners were a major drag on private investment and exports. On the domestic front, an unexpected drop in subnational public investment level and temporary supply disruptions in mining, fishing, and agriculture compounded external shocks. Real GDP is projected to expand at about 3.75 percent in 2015, contingent on the reversal of the supply shocks and policy stimulus of 2014. Growth is expected to rise in 2016–17.
    Keywords: Economic growth;Article IV consultation reports;Economic indicators;Financial system stability assessment;Peru;Press releases;Staff Reports;Fiscal policy;Fiscal reforms;Flexible exchange rate policy;Monetary policy;investment, debt, poverty, monetary fund, deficit
    Date: 2015–05–27
  54. By: Qianying Chen; Andrew Filardo; Dong He; Feng Zhu
    Abstract: We study the impact of the US quantitative easing (QE) on both the emerging and advanced economies, estimating a global vector error-correction model (GVECM) and conducting counterfactual analyses. We focus on the effects of reductions in the US term and corporate spreads. First, US QE measures reducing the US corporate spread appear to be more important than lowering the US term spread. Second, US QE measures might have prevented episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on the emerging economies have been diverse but often larger than those recorded in the US and other advanced economies. The heterogeneous effects from US QE measures indicate unevenly distributed benefits and costs.
    Keywords: Financial crises;Financial crisis;Spillovers;Monetary policy;Unconventional monetary policy instruments;United States;United States;emerging economies, global VAR, international monetary policy spillovers, quantitative easing, unconventional monetary policy, federal reserve, securities, reserve, Financial Markets and the Macroeconomy, Monetary Policy (Targets, Instruments, and Effects), Studies of Particular Policy Episodes, International Policy Coordination and Transmission, Forecasting and Simulation,
    Date: 2015–04–29
  55. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: The two-year Precautionary and Liquidity Line (PLL) arrangement with Morocco approved in August 2012 aimed to provide insurance and signal that the authorities’ policies were sound and that Morocco had adequate financial resources to draw upon, should external risks materialize. Sound macroeconomic policies strengthened Morocco’s economic policy buffers in the run-up to the 2008 global financial crisis, allowing it to weather the crisis relatively well. Macroeconomic vulnerabilities increased in the run-up to the PLL arrangement, stemming from weak growth in Morocco’s trading partners and from international oil prices. To address those vulnerabilities, the authorities envisaged a gradual reduction in fiscal and current account deficits. And in a context of domestic and regional tensions, the reform agenda also sought to support higher potential growth (including through a reallocation of fiscal spending to favor investment spending), strengthen the social safety net, and reduce unemployment. In that vein, the fiscal strategy appropriately balanced the trade-off of strengthening buffers and supporting growth. The authorities intended to treat the PLL arrangement as precautionary. The PLL arrangement was cancelled—without having been drawn upon—and the Executive Board approved a new 24-month PLL arrangement with lower access in July 2014.
    Keywords: Press releases;Fiscal policy;Morocco;Precautionary and Liquidity Line;Fiscal reforms;Monetary policy;Access policy;Ex post assessments;Exceptional use of Fund resources;Economic indicators;liquidity, monetary fund, debt, exchange rate, exchange
    Date: 2015–08–06
  56. By: Goodness C. Aye (Department of Economics, University of Pretoria Author-Email:; Mehmet Balcilar Author-Name-First Mehmet (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus); Adel Bosch (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This paper examines the housing-output growth nexus in South Africa by accounting for the time variation in the causal link with a bootstrapped rolling Granger non-causality test. We use quarterly data on real gross domestic product, real house prices, real gross fixed capital formation and number of building plans passed. Our data span 1971Q2-2012Q2. Using full sample bootstrap Granger causality tests, we find a uni-directional causality from output to number of building plans passed; a uni-directional causality from real house price to output and a bi-directional causal link between residential investment and output. However, using parameter stability tests, we show that estimated VARs are unstable, thus full-sample Granger causality inference may be invalid. Hence, we use a bootstrap rolling window estimation to evaluate Granger causality between the housing variables and the growth rate. In general, we find that the causality from housing to output and, vice versa, differ across different sample periods due to structural changes. Specifically speaking, house price is found to have the strongest causal relationship with output compared to residential investment and number of building plans passed, with real house price showing predictive ability in all but one downward phase of the business cycle during this period.
    Keywords: House price; residential investment; number of building plans; GDP; bootstrap; time varying causality
    JEL: C32 E32 R31
    Date: 2014
  57. By: Tamim Bayoumi
    Abstract: This paper examines domestic policy cooperation, a curiously neglected issue. Both international and domestic cooperation were live issues in the 1970s when the IS/LM model predicted very different external outcomes from monetary and fiscal policies. Interest in domestic policy cooperation has since fallen on hard intellectual times—with knock-ons to international cooperation—as macroeconomic policy roles became highly compartmentalized. I first discuss the intellectual and policy making undercurrents behind this neglect, and explain why they are less relevant after the global crisis. This is followed by a discussion of: macroeconomic policy cooperation in a world of more fiscal activism; coordination across financial agencies and with macroeconomic policies; and how structural policies fit into this. The paper concludes with a proposal for a “grand bargain†across principle players to create a “new domestic cooperation.â€
    Keywords: Crisis management;Central bank independence;Macroprudential Policy;Domestic Policy Cooperation, monetary policy, fiscal policy, central bank, international monetary fund, central banks, Structure and Scope of Government, General,
    Date: 2015–07–15
  58. By: Argentiero, Amedeo; Bovi, Maurizio; Cerqueti, Roy
    Abstract: Standard dynamic stochastic general equilibrium (DSGE) models are populated by fully-informed-optimising Muth-rational agents. This kind of agent is at odds with well-known psychological biases, not to mention real life people. In particular, there are strong theoretical and empirical reasons to believe that consumers are overly optimistic. Also, the size of over optimism is likely to show cyclical features. In this paper we simulate two DSGE models, one standard with Muth-rational consumers, the other different just because agents are allowed to over consume. We then compare them throughout different cyclical phases. Results show that taking into account psychological biases allows the DSGE to fit better actual data in the long-run and in an economic boom scenario. Recessions are instead characterized by pessimism. We also find that over consumption is a structural trait. Moreover, booms enlarge significantly the magnitude of the bias. These findings are in line with - and enrich - both the economic and psychological literature, implying i) that the business cycle has a non trivial psychological content, and ii) that the size of psychological biases is affected by macroeconomic evolutions.
    Keywords: DSGE models, Psychological Biases, Business Cycle.
    JEL: C30 E32
    Date: 2015–09–03
  59. By: Mankart, Jochen; Oikonomou, Rigas
    Abstract: We develop a theoretical model with labor market frictions, incomplete financial markets and with households which have two members. Households face unemployment risks but their members adjust their labor supplies to insure against unemployment. We use the model to explain the cyclical properties of aggregate employment and participation. As in the US data, the model predicts that the participation rate (the fraction of individuals that want jobs) is not strongly correlated with aggregate economic activity. This property is in sharp contrast to the strongly procyclical participation predicted by both neoclassical models and models with search frictions, when we assume bachelor households or households with infinitely many members (complete markets). In the two member household model and in the data, primary earners are always in the labor force, secondary earners have a mildly countercyclical participation rate and a mildly procyclical employment rate. Their behavior insures the household against unemployment risks.
    Keywords: Heterogeneous Agents,Family Self Insurance,Labor Market Search,Aggregate Fluctuations
    JEL: E24 E25 E32 J10 J64
    Date: 2015
  60. By: International Monetary Fund. African Dept.
    Abstract: This paper discusses Rwanda’s Third Review Under the Policy Support Instrument (PSI). Rwanda’s performance under the PSI has been satisfactory. The authorities are to be commended for meeting all quantitative assessment criteria. The performance on indicative targets and structural benchmarks was uneven, and it will be important to maintain the momentum of reforms, including on revenue mobilization while strengthening project implementation. Growth in 2015 is expected to remain strong, while the outlook is stable. The cautious fiscal stance and monetary policy are consistent with the need to preserve policy buffers.
    Keywords: Economic indicators;Rwanda;Public investment;Press releases;Policy Support Instrument;Staff Reports;Infrastructure;Letters of Intent;Monetary policy;Fiscal policy;debt, inflation, revenue, instrument, investment
    Date: 2015–06–03
  61. By: International Monetary Fund. African Dept.
    Abstract: EXECUTIVE SUMMARY A transition government has been put in place to lead the country to elections in October 2015 and wishes to continue the existing ECF arrangement. The authorities feel the program provides continuity for the transition, and helps safeguard macroeconomic stability, while supporting reforms to address long-standing structural problems. Program performance has been satisfactory, with all performance criteria and most quantitative targets and structural benchmarks met. Staff’s assessment is that the transition authorities have the technical capacity and political will to implement the agreed measures. Growth has been revised downwards following multiple shocks. Reductions in commodity prices for the country’s two leading exports, the impact of Ebola in the region on tourism and services, and political uncertainty leading up to resignation of Compaoré’s government in late October 2014 all contributed to a marked slowdown in growth. Real growth is estimated to have been 4 percent in 2014 and is projected at 5 percent for 2015. Lower fiscal revenues forced large spending reduction/import compression. To eliminate large external and fiscal imbalances implied by the shocks and recent depreciation of the CFAF against the US dollar, through the CFAF peg to the euro, the transition government has reduced spending sharply. Even with spending adjustment, revenue measures, and additional budget support commitments from donors, large reserves drawdown will be required meet balance of payment needs. Together with approval of the delayed 2nd review and the 3rd review, the authorities request 40 percent of quota augmentation of access to help meet immediate balance of payments needs. Forward-looking program commitments encompass wide-ranging measures that have both immediate and longer term impacts. Revenue measures aim to reduce fraud and increase revenue intake, along with passage of the long-awaited revised mining code. Spending measures aim to safeguard priority social spending and contain the public wage bill. Extensive reforms are underway to improve budget transparency and cash management, after cash rationing in 2014 gave rise to domestic arrears. Finally, the authorities will implement recommendations of recent audits of state-owned energy companies, including performance contracts to regularize financial obligations and reduce costs, providing scope for better cost recovery, including through more flexible price-setting, in the future.
    Keywords: Burkina Faso;Extended Credit Facility;Fiscal policy;Fiscal reforms;Energy sector;Subsidies;Commercial banks;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Performance criteria modifications;budget, monetary fund, investment, revenues
    Date: 2015–07–24
  62. By: Estelle X. Liu; Todd Mattina; Tigran Poghosyan
    Abstract: This paper outlines an operational approach for incorporating the impact of asset price cycles in the calculation of structural fiscal balances (SFBs). The global financial crisis demonstrated that movements in asset prices can have an important fiscal impact. Failing to account for the fiscal impact of asset price cycles can encourage a pro-cyclical policy stance if temporarily high revenues are passed through into expenditures. In addition, over-estimating the SFB may lead to inadequate fiscal buffers when cyclical revenues eventually dissipate. The paper proposes an empirical approach to correct for asset prices and provides illustrative country results for selected OECD countries. We find that asset price cycles are imperfectly synchronized with the business cycle and are quantitatively significant with an average pre-crisis fiscal impact ranging from about ½ to 2 percent of GDP in the sample. For a number of countries, the pre-crisis fiscal impact of high asset prices was larger at about 4 percent of GDP.
    Keywords: Econometric models;Asset prices;Business cycles;Financial crisis;Financial crises;Error analysis;OECD;Revenues;Structural fiscal balance;asset price, equity market, housing market, panel data econometrics, prices, price, equity, Asset Pricing, Deficit, panel data econometrics.,
    Date: 2015–05–19
  63. By: International Monetary Fund. European Dept.
    Abstract: This Selected Issues paper analyzes the causes of the high inflation in Belarus. It estimates the contribution of two factors: (1) exchange rate pass-through and (2) administrative price increases. Residual inflation is used as a gauge for inflation caused directly by demand pressures and inflation expectations. It is found that the administrative price increases are a key driver of inflation, even ahead of demand pressures, which also explain a large share of inflation. Although exchange rate pass-through is found to be high and fast, particularly for unregulated prices, its contribution to inflation has been comparatively modest in recent years owing to the stability of the exchange rate.
    Keywords: Belarus;prices, price, inflation, market, exchange
    Date: 2015–05–29
  64. By: International Monetary Fund. European Dept.
    Abstract: This 2015 Article IV Consultation highlights that Switzerland’s economy has performed relatively well in the aftermath of the global financial crisis, with growth reaching 2 percent in 2014. However, the economic environment became more complicated in late 2014, as increased capital inflows forced the Swiss National Bank (SNB) to start intervening heavily to defend its exchange rate floor of 1.20 francs per euro. Over the medium term, the economy is expected to recover gradually. As the economy adjusts to the exchange rate appreciation, growth is projected to rise gradually back to about 2 percent over the medium term while inflation increases to about 1 percent.
    Keywords: Switzerland;exchange, inflation, exchange rate, monetary fund, national bank
    Date: 2015–05–27
  65. By: Brüggemann, Bettina; Yoo, Jinhyuk
    Abstract: We analyze the macroeconomic implications of increasing the top marginal income tax rate using a dynamic general equilibrium framework with heterogeneous agents and a fiscal structure resembling the actual U.S. tax system. The wealth and income distributions generated by our model replicate the empirical ones. In two policy experiments, we increase the statutory top marginal tax rate from 35 to 70 percent and redistribute the additional tax revenue among households, either by decreasing all other marginal tax rates or by paying out a lump-sum transfer to all households. We find that increasing the top marginal tax rate decreases inequality in both wealth and income but also leads to a contraction of the aggregate economy. This is primarily driven by the negative effects that the tax change has on top income earners. The aggregate gain in welfare is sizable in both experiments mainly due to a higher degree of distributional equality.
    Keywords: Top Income Taxation,Heterogeneous Agents,Incomplete Markets,Income and Wealth Inequality
    JEL: E21 E62 H21 H24
    Date: 2015
  66. By: International Monetary Fund. African Dept.
    Abstract: This 2015 Article IV Consultation highlights that in the last two years, the Zambian economy has been weighed down by large fiscal imbalances, lower copper prices, and policy uncertainties. Real GDP growth has slowed, the current account has deteriorated, international reserves have fallen, and the exchange rate has been under downward pressure. The IMF staff estimates that real GDP growth slowed from 6.7 percent in 2013 to 5.6 percent in 2014, driven by a contraction in copper production. Growth is projected to average 5.5–7 percent a year over the medium term, reflecting the impact of investments in mining and electricity in recent years.
    Keywords: Economic indicators;Financial management;Balance of payments statistics;Article IV consultation reports;Bank supervision;Debt sustainability analysis;Press releases;Staff Reports;Monetary policy;Fiscal policy;Fiscal reforms;Zambia;exchange, exchange rate, investment, monetary fund
    Date: 2015–06–16
  67. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: This 2014 Article IV Consultation highlights that Brazil’s growth has decelerated in recent years. The boost from decade-old reforms, expanding labor income, and favorable external conditions, which enabled consumption and credit-led growth and underpinned sustained poverty reduction, has lost steam. Investment has been sluggish, reflecting eroding competitiveness, a worsening business environment, and lower commodity prices. The IMF staff projects negative output growth of 1 percent in 2015, with some drag from tighter fiscal and monetary policies and from the cuts in investment by Petrobras, adding to the downward momentum in activity carried over from 2014.
    Keywords: Debt sustainability analysis;Brazil;Article IV consultation reports;Economic indicators;Exchange markets;Fiscal consolidation;Fiscal reforms;Fiscal policy;Inflation targeting;Intervention;Monetary policy;Staff Reports;Press releases;Public debt;poverty, debt, investment, market
    Date: 2015–05–12
  68. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: The conflicts in Syria and Iraq have led to a massive influx of refugees, putting enormous pressure on Jordan’s limited resources, and to disruptions in trade routes, less tourism, and a hesitant investment sentiment. At the same time, the near complete halt of gas flows from Egypt required imports of expensive fuel for electricity generation, contributing to large losses at the national electricity company and adding to the already high public debt. Jordan’s program has helped the economy weather these shocks. Gradual consolidation by the central government and public utilities, aided by lower oil prices, ensured that public debt is broadly stabilizing this year and, together with a prudent monetary policy, has preserved macroeconomic stability and supported confidence.
    Keywords: Staff Reports;Stand-by arrangement reviews;Public sector;Post-program monitoring;Press releases;Monetary policy;Fiscal reforms;Fiscal policy;Letters of Intent;Jordan;Economic indicators;Debt sustainability analysis;Balance of payments statistics;debt, inflation, public debt, market, monetary fund
    Date: 2015–08–05
  69. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: This paper discusses the main features of the Staff-Monitored Program (SMP) for Afghanistan. The SMP is designed to support the authorities’ reform agenda with a framework to address economic vulnerabilities and facilitate engagement with the international community to sustain donor support. The SMP will foster continued close engagement with Afghanistan, address immediate fiscal and banking vulnerabilities, and help manage risks. The SMP will also preserve buffers, maintain low inflation and competitiveness, and lay the basis for high and inclusive growth. Under the SMP, fiscal policy will focus on mobilizing domestic budget revenue to finance projected expenditure and rebuild the treasury’s cash balance.
    Keywords: Economic indicators;Combating the financing of terrorism;Banking sector;Anti-money laundering;Afghanistan, Islamic Republic of;Afghanistan;Fiscal reforms;Governance;Letters of Intent;Monetary policy;Press releases;Staff Reports;Staff-monitored programs;revenue, budget, security, exchange, treasury
    Date: 2015–06–02
  70. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: The Syrian crisis and the associated inflow of refugees continue to dominate Lebanon’s short-term outlook, compounding long-standing policy weaknesses and vulnerabilities. Political paralysis has set in, with virtually no progress on the structural front. Growth has remained modest and insufficient to make a dent in rising poverty and unemployment. A welcome improvement in the primary fiscal position in 2014 was largely due to temporary factors, and will not be sustained absent adjustment efforts—implying that, without additional effort, Lebanon’s already-sizable public debt burden will only worsen. Financial conditions have nonetheless remained stable, as deposit inflows continue to fund the economy and sizeable buffers support the credibility of the exchange rate peg.
    Keywords: Lebanon;debt, public debt, oil prices, monetary fund, inflation
    Date: 2015–07–17
  71. By: International Monetary Fund. African Dept.
    Abstract: KEY ISSUES Background. The Gambian economy is facing urgent balance of payments needs triggered mostly by the impact of the regional Ebola outbreak on tourism. Although the country remains Ebola free, the regional outbreak is expected to cut by more than half tourism receipts for the 2014/15 season. During 2014?15, the impact of the shocks on the balance of payments, offset in part by lower global fuel prices, is estimated to be $40 million (over 5 percent of 2015 GDP). Policy slippages and persistent financial difficulties in public enterprises have exacerbated the problems and pushed The Gambia’s ECF arrangement off track. In their Letter of Intent the authorities have notified the Fund of their decision to cancel the arrangement. Request. The authorities are requesting support under the RCF—in an amount of SDR 7.775 million or equivalent to 25 percent of quota—to cope with the urgent balance of payments needs and a one-year staff-monitored program (SMP) to guide policy implementation before returning to a successor ECF arrangement, provided policies remain on track. Main policy commitments. The authorities have taken a number of upfront policy actions. The approved 2015 budget envisages lowering net domestic borrowing (NDB) to 1 percent of GDP in 2015 from 12¼ percent in 2014, anchored by a set of revenue and expenditure measures, and complemented by some $22 million in external budget support. The authorities have taken steps to resolve the financial problems of key public enterprises and intend to take measures to secure their medium-term fiscal consolidation and poverty reduction objectives. Staff’s view. Staff supports the authorities’ request. Staff views the package of measures articulated in the attached letter of intent as representing a considerable effort. The RCF disbursement would augment the authorities’ own strong adjustment efforts, help catalyze additional donor financing, and give the authorities the time needed to develop their medium-term adjustment plans. The SMP will provide the Gambian authorities an opportunity to establish a track record before moving to a successor ECF to which they aspire. A period of monitoring will also allow the time needed to assess the impact of the shocks fully and hence better tailor the objectives of a successor ECF arrangement.
    Keywords: Extended arrangement cancellations;Extended Credit Facility;External shocks;Economic indicators;Debt sustainability analysis;Balance of payments need;Letters of Intent;Monetary policy;Gambia, The;Fiscal policy;Press releases;Rapid Credit Facility;Staff Reports;Staff-monitored programs;balance of payments, exchange, monetary fund, disbursement, central bank
    Date: 2015–04–22
  72. By: Buiter, Willem H.; Sibert, Anne C.
    Abstract: Large and growing levels of public debt in the United States, United Kingdom, Japan and the Euro Area raise new interest in the cross-country effects of a large open economy's deficits. The authors consider a dynamic optimising model with costly tax collection and exogenously given public spending and initial debt. They ask whether the externalities associated with an individual country's deficits are positive or negative. They characterise the path of taxes in the Nash equilibrium where policy makers act nationalistically and compare this outcome to the global optimal outcome.
    Keywords: fiscal policy,international policy coordination,optimal taxation
    JEL: E62 F42 H21
    Date: 2015
  73. By: Paul Cashin; Kamiar Mohaddes; Mehdi Raissi
    Abstract: This paper employs a dynamic multi-country framework to analyze the international macroeconomic transmission of El Niño weather shocks. This framework comprises 21 country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for not only direct exposures of countries to El Niño shocks but also indirect effects through thirdmarkets. We contribute to the climate-macroeconomy literature by exploiting exogenous variation in El Niño weather events over time, and their impact on different regions crosssectionally, to causatively identify the effects of El Niño shocks on growth, inflation, energy and non-fuel commodity prices. The results show that there are considerable heterogeneities in the responses of different countries to El Niño shocks. While Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Niño shock, for other countries (including the United States and European region), an El Niño occurrence has a growth-enhancing effect. Furthermore, most countries in our sample experience short-run inflationary pressures as both energy and non-fuel commodity prices increase. Given these findings, macroeconomic policy formulation should take into consideration the likelihood and effects of El Niño weather episodes.
    Date: 2015–04–30
  74. By: Hiona Balfoussia (Bank of Greece); Heather D. Gibson (Bank of Greece)
    Abstract: This paper explores the relationship between financial conditions and real economic activity in the euro area as a whole and for Greece in particular. We use a financial conditions index (see Angelopoulou et al., 2014) which is constructed using a wide range of prices, quantities, spreads and survey data in line with theory. We update the indices and use them within a VAR framework to estimate the potential impact of the TLTROs on aspects of economic activity. Our results suggest that financial conditions do have a significant effect on economic activity and thus the TLTROs, to the extent that they are designed to improve financial conditions, will provide a boost to the real economy.
    Keywords: financial conditions; monetary policy; financial crisis; credit; non-standard measures
    JEL: E52 E51 E61 E63 E65
    Date: 2015–07
  75. By: Davide Furceri; Prakash Loungani; John Simon; Susan Wachter
    Abstract: This paper provides a broad brush look at the impact of fluctuations in global food prices on domestic inflation in a large group of countries. For advanced economies, we find that these fluctuations have played a significant role over the period from 1960 to the present, but the impact has declined over time and become less persistent. We also find that the more recent global food price shocks occurred in the 2000s had a much bigger impact on emerging than on advanced economies. This larger impact could reflect the larger share of food in the consumption baskets in emerging economies on average than in advanced economies, and less anchored inflation expectations in emerging economies than in advanced economies.
    Keywords: Inflation;Food prices;pass-through, food, economies, food price, General, Monetary Policy (Targets, Instruments, and Effects), Open Economy Macroeconomics,
    Date: 2015–06–24
  76. By: International Monetary Fund. European Dept.
    Abstract: This Selected Issues paper analyzes expenditure reforms in France. After decades of rising public spending and successive tax increases, the medium-term fiscal consolidation path described in the 2015 Stability Program is now fully expenditure based. However, recent efforts of nominal spending containment have not delivered the intended savings in the context of low growth and inflation. A thorough review of the efficiency of public spending could help prepare more fundamental reforms of spending programs and processes to underpin a lasting reduction in expenditures, which reached a record high of 57.2 percent of GDP in 2014.
    Keywords: France;spending, public, social expenditure, expenditure, public spending
    Date: 2015–07–10
  77. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: This 2015 Article IV Consultation highlights that Micronesia’s economy is stagnating, as externally funded infrastructure projects are moving slowly. Difficulties in the business climate, in particular those related to land tenure issues, continue to hold back private sector development. Real GDP growth of about 0.1 percent is estimated for the fiscal year 2014. The Micronesian economy is projected to grow at 0.6 percent in the medium term, while risks on the outlook are tilted to the downside. Growth in 2015 is projected to remain subdued at 0.3 percent, while consumer prices are projected to further decline to negative 1.0 percent thanks to the continued pass through of low oil prices.
    Keywords: Micronesia, Federated States of;tax, revenue, trust funds, trust fund, expenditure
    Date: 2015–05–15
  78. By: International Monetary Fund. African Dept.
    Abstract: EXECUTIVE SUMMARY Context: São Tomé and Príncipe’s economic development is constrained by its insularity, fragility, limited resources, and low capacity as a small island state. The current ECF arrangement is set to expire on July 19, 2015, with four reviews outstanding. Program performance was satisfactory during the first year and half of implementation but went off track in early 2014 upon the contracting of a loan resulting in nonobservance of the performance criterion on non-concessional debt, and expenditure slippages in the run up to national elections further delayed program resumption. In the meantime, the key assumptions of the macroeconomic framework agreed under the current program changed significantly due to a lower probability of commercial oil production. Extended Credit Facility. The São Toméan authorities have requested a three-year arrangement under the ECF in an amount equivalent to SDR 4,440,000 (60 percent of quota) to rebuild buffers and catalyze financing in support of their medium-term economic reform program. The existing program would be cancelled. Main elements of the program. The program seeks to address the high debt vulnerability while also creating the conditions for sustained growth, anchored by the PRSP II. This involves reforms to: • Strengthen domestic revenue mobilization, expenditure rationalization, public debt management, and public financial management to restore fiscal discipline and reduce the risk of debt distress. • Introduce a comprehensive plan to eliminate the stock of arrears and also prevent the accumulation of new arrears. • Enhance the capacity of key government institutions through well-tailored technical assistance (TA). • Enhance financial sector stability through strengthened supervisory, regulatory, crisis management and bank resolution frameworks.
    Keywords: Extended Credit Facility;Fiscal policy;Revenue mobilization;Fiscal reforms;Monetary policy;Bank supervision;Economic indicators;Millennium Development Goals;Debt sustainability analysis;Letters of Intent;Staff Reports;Press releases;Extended arrangement requests;S?o Tom? and Pr?ncipe;debt, expenditure, arrears, monetary fund, revenue
    Date: 2015–07–21
  79. By: Chugh, Sanjay K. (Boston College); Merkl, Christian (University of Erlangen-Nuremberg)
    Abstract: This paper characterizes efficient labor-market allocations in a labor selection model. The model's crucial aspect is cross-sectional heterogeneity for new job contacts, which leads to an endogenous selection threshold for new hires. With cross-sectional dispersion calibrated to microeconomic data, 40 percent of empirically-relevant fluctuations in the job-finding rate arise, which contrasts with results in an efficient search and matching economy. The efficient selection model's results hold in partial and general equilibrium, as well as with sequential search.
    Keywords: labor market, labor selection, labor market frictions, hiring costs, sequential search, efficiency, amplification
    JEL: E24 E32 J20
    Date: 2015–08
  80. By: Louise Fox
    Abstract: This paper reviews the evidence on how households in Sub-Saharan Africa segment along consumption, income and earning dimensions relevant for quantitative macroeconomic policy models which incorporate heterogeneity. Key findings include the importance of home-grown food in the income and consumption of house-holds well up the income distribution, the lack of formal financial inclusion for all but the richest households, and the importance of non-wage income. These stylized facts suggest that an externally-generated macroeconomic shock and the short-term policy response would mainly affect the behavior and welfare of these richer urban households, who are also more likely to have the means to cope. Middle class and poor households, especially in rural areas, should be insulated from these external shocks but vulnerable to a wide range of structural factors in the economy as well as idiosyncratic shocks.
    Keywords: Econometric models;Djibouti;Congo, Democratic Republic of the;Congo, Republic of;Comoros;Central African Republic;Chad;Algeria;Angola;Burkina Faso;Burundi;Benin;Botswana;Business cycles;Cameroon;Employment;Ethiopia;Eritrea;Equatorial Guinea;Egypt;Rwanda;Seychelles;Senegal;Sierra Leone;Somalia;South Africa;South Sudan;Ghana;Gambia, The;Gabon;Guinea-Bissau;Guinea;Income distribution;Income inequality;Household consumption;Mali;Mauritania;Mauritius;Nigeria;Niger;Morocco;Mozambique;Namibia;Kenya;Lesotho;Liberia;Libyan Arab Jamahiriya;Madagascar;Malawi;Sub-Saharan Africa;Sudan;Swaziland;Tanzania;Togo;Uganda;Tunisia;Zimbabwe;Zambia;Inequality, macroeconomics, household heterogeneity, Macro Models, Macroeconomic Stabalization, Labor Economics, Informal Labor Market, Mobility, income, poor, poor households, savings, Personal Income and Wealth Distribution, General, Labor Economics: General, Macroeconomic Analyses of Economic Development, Fiscal and Monetary Policy in Development,
    Date: 2015–05–06
  81. By: Dong He; Wei Liao; Tommy Wu
    Abstract: This paper investigates the synchronization of Hong Kong SAR’s economic growth with mainland China and the United States. This paper identifies trends of economic growth based on the permanent income hypothesis. Specifically, the paper confirms whether real consumption in Hong Kong SAR and mainland China satisfy the permanent income hypothesis, at least in a weak form. It then identifies the permanent and transitory components of income of each economy using a simple state-space model. It uses structural vector autoregression models to analyze how permanent and transitory shocks originating from mainland China and the United States affect the Hong Kong economy, and how such influences evolve over time. The paper’s main findings suggest that transitory shocks from the United States remain a major driving force behind Hong Kong SAR’s business cycle fluctuations. On the other hand, permanent shocks from mainland China have a larger impact on Hong Kong SAR’s trend growth.
    Keywords: Economic growth;China;Consumption;Business cycles;Economic integration;Hong Kong Special Administrative Region of China;Hong Kong SAR;Income;United States;United States;Business cycle synchronization, permanent income hypothesis, stochastic trend, structural vector autoregression, permanent income, exports, economy, International Business Cycles, structural vector autoregression.,
    Date: 2015–04–28
  82. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: This 2015 Article IV Consultation highlights that the U.S. economy’s momentum in the first quarter of 2015 was sapped by unfavorable weather, a sharp contraction in oil sector investment, and the West Coast port strike. But the underpinnings for a continued expansion remain in place. A solid labor market, accommodative financial conditions, and cheaper oil should support a more dynamic path for the remainder of the year. Despite this, the weaker outturn in the first few months of 2015 will unavoidably pull down 2015 growth. Despite important policy uncertainties, the near-term fiscal outlook has improved, and the federal government deficit is likely to move modestly lower in the current fiscal year.
    Keywords: Press releases;Staff Reports;United States;United States;Monetary policy;Fiscal reforms;Fiscal risk;Fiscal policy;Housing;Debt sustainability analysis;Economic growth;Economic indicators;Budgets;Article IV consultation reports;Balance of payments statistics;inflation, market, monetary fund, investment, financial stability
    Date: 2015–07–07
  83. By: Dorrucci, Ettore; Ioannou, Demosthenes; Mongelli, Francesco Paolo; Terzi, Alessio
    Abstract: This paper presents a European Index of Regional Institutional Integration (EURII), which maps developments in European integration from 1958 to 2014 on the basis of a monthly dataset. EURII captures what we call: (i) the “Common Market Era”, which lasted from 1958 until 1993; and (ii) the first twenty years of the “Union Era” that started in 1994, but gained new impetus in response to the euro area crisis. The paper complements the economic narratives of the crisis with an institutional approach highlighting the remedies to the flaws in the initial design of Economic and Monetary Union (EMU). In fact, since 2010, EMU’s institutional framework has been substantially reformed. While work on EMU’s new governance is still in progress, the broad contours of a “genuine union” have been outlined in the Four Presidents’ Report of December 2012. The report envisages a more effective economic union, a fiscal union, a financial union, and a commensurate political union. The aim of the EURII index is threefold: (i) to provide a tool to synthesise and monitor the process of European institutional integration since 1958 and, in particular, track institutional reforms since 2010; (ii) to expand a previous integration index by showing that monetary unification – which was initially understood as “the cherry on the Internal Market pie” – implied a major discontinuity in the process and nature of European integration, that is, a new “pie on the cherry”; and (iii) to offer a tool for further research, policy analysis and communication. JEL Classification: F33, F42, N24
    Keywords: Economic and Monetary Integration, euro, Financial Deepening and Integration, Four Presidents' Report, Institutions and Governance, Optimum Currency Area, Sovereign Crisis
    Date: 2015–02
  84. By: International Monetary Fund. European Dept.
    Abstract: Portugal’s economic recovery remains on track, boosted by a generally supportive external environment and a rebound in confidence. Despite recent market volatility related to Greece, Portugal continues to benefit from favorable commodity prices, low interest rates and a weaker euro. Real GDP growth is projected at 1.6 percent for 2015, supported by a pickup in exports and a welcome upturn in investment. But growth is expected to moderate over the medium term as cyclical factors weaken and still high public and private debt constrain the pace of recovery.
    Keywords: Balance of payments statistics;Banking sector;Debt sustainability analysis;Economic indicators;Fiscal reforms;Fiscal policy;Nonbank financial sector;Press releases;Post-program monitoring;Public debt;Staff Reports;debt, market, investment, monetary fund
    Date: 2015–08–06
  85. By: Hebous, Shafik; Weichenrieder, Alfons J.
    Abstract: There is a growing debate about complementing the European Monetary Union by a more comprehensive fiscal union. Against this background, this paper emphasizes that there is a trade-off in designing a system of fiscal transfers ("fiscal capacity") in a union between members of different size. A system cannot guarantee symmetric treatment of members and simultaneously ensure a balanced budget. We compute hypothetical transfers for the Eurozone members from 2001 to 2012 to illustrate this trade-off. Interestingly, a symmetric system that treats shocks in small and large countries symmetrically would have produced large budgetary surpluses in 2009, the worst year of the financial crisis.
    Keywords: fiscal union,asymmetric shocks,federal transfers,optimum currency area
    JEL: H50 H60
    Date: 2015
  86. By: Warmedinger, Thomas; Checherita-Westphal, Cristina; Hernández de Cos, Pablo
    Abstract: This paper seeks to link the debate surrounding short-term fiscal multipliers with the medium and longer-term impact of fiscal consolidation on public debt sustainability. A literature review and empirical findings for state-dependent multipliers confirm that there is considerable uncertainty surrounding the size of the short-term multiplier. Notably, multipliers may be larger in deep recessions or financial crises, but the negative impact of fiscal consolidation is mitigated when public finances are weak. Using a stylised framework and a range of plausible values for the fiscal multiplier, simulations suggest that an increase in the debt ratio following episodes of fiscal consolidation is likely to be short-lived. Even in a macroeconomic context in which multipliers are high, a front-loaded fiscal consolidation reduces the total consolidation effort and implies a faster stabilisation of the debt ratio. In general, back-loading is subject to higher implementation risks, most notably in the light of political economy considerations. Overall, when determining the fiscal adjustment path, both the short-term costs and the longer-term benefits need to be taken into account. Particular attention should be paid to the composition of consolidation packages, with well-designed adjustments likely to imply a faster stabilisation of the debt ratio. JEL Classification: H30, H6, E6
    Keywords: Fiscal policies, Government debt, Macroeconomic Aspects of Public Finance, Sustainability
    Date: 2015–06
  87. By: Lacina Balma; Mthuli Ncube
    Abstract: This paper analyzes the link between public investment, economic growth and debt sustainability in Sierra Leone using an inter-temporal macroeconomic model. In the model, public capital improves the productive capacity of private capital, generating positive medium and long term effects to increases in public investment. The model application indicates that a large increase in public investment would have positive macroeconomic effects in the medium term. However, since there is no free lunch, rigidities in tax adjustment would entail unrealistic and unachievable adjustment in the current spending to cover recurrent costs and ensure debt sustainability. A more ambitious increase in public investment would entail more fiscal adjustment, particularly if external commercial loans are secured to complement the adjustment. The model simulations also emphasize the importance of improvements in the structural economic conditions to reap growth dividends. In addition, even if the macroeconomic implications of public investment scaling-up can be favorable in the long term under changes in certain structural conditions, downside risks such as terms of trade shifts and Ebola-induced productivity shortfall expose the country to increased risk of unsustainable debt dynamics. This underscores the need to remove bottlenecks to growth and maintain prudent borrowing policies.
    Keywords: Sierra Leone;Public investment;Structural Transformation, Growth, Debt Sustainability, investment, debt, external commercial borrowing, International Lending and Debt Problems, Institutions and Growth, Debt Sustainability.,
    Date: 2015–07–20
  88. By: Fazurin Jamaludin; Vladimir Klyuev; Anuk Serechetapongse
    Abstract: Growth has been sluggish in Pacific island countries (PICs). High cost of credit is likely one of the reasons. While the small scale, geographic dispersion, and vulnerability to shocks increase the cost and risk of credit in this country group, there is considerable variability in interest rate spreads both across countries and over time. This paper examines the determinants of lending rates and interest rate spreads in a panel of six PICs, extending the literature that was largely descriptive in nature or focused on a single country. Our results are in line with economic theory. We find that the size of the economy is negatively correlated with spreads, confirming the importance of scale. Inflation appears to have only marginal impact on spreads. High loan loss provisions and nonperforming loans increase the cost of credit. So does banking system concentration. Higher institutional quality is associated with lower spreads.
    Keywords: Cross-country analysis;Banking systems;Fiji;Foreign banks;Marshall Islands;Micronesia, Federated States of;Interest rates;Kiribati;Profit margins;Samoa;Papua New Guinea;Palau;Pacific Island Countries;Solomon Islands;Timor-Leste;Tonga;Vanuatu;banks, bank, interest, banking, banking sector
    Date: 2015–05–04
  89. By: International Monetary Fund. European Dept.
    Abstract: This 2015 Article IV Consultation highlights that after six years of persistent recession, Croatia’s economy is showing first signs of recovery. Robust retail sales and value-added tax receipts suggest that private consumption has bottomed out. Employment has stabilized and corporate profits are recovering. Tailwinds from a favorable external environment have helped, notably lower energy prices, stronger euro area growth, and ample domestic and external liquidity that contain debt servicing costs. For 2015, the economy is projected to grow by 0.5 percent. Net exports are expected to make a modest positive contribution to growth.
    Keywords: Economic indicators;Bank supervision;Article IV consultation reports;Croatia;Croatia;Debt sustainability analysis;Economic conditions;Press releases;Staff Reports;Monetary policy;Fiscal policy;Fiscal reforms;debt, monetary fund, market, public debt, deficit
    Date: 2015–07–02
  90. By: International Monetary Fund. European Dept.
    Abstract: This 2015 Article IV Consultation highlights that Luxembourg’s economic model, emphasizing fiscal stability, openness, firm prudential oversight, and responsiveness to investor needs, is delivering strong growth. Buoyant financial services exports contributed to real growth of close to 3 percent in 2014, with strong job creation. Budget 2015 launched a multi-year fiscal consolidation aimed at offsetting falling revenues from electronic commerce. The economy faces important challenges going forward. Evolving international tax transparency standards, in which Luxembourg is participating fully, could impact the revenue base. Growth is projected at 2.5 percent in 2015.
    Keywords: Luxembourg;tax, monetary fund, debt, investment, transparency
    Date: 2015–06–08
  91. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: A powerful earthquake hit Nepal on April 25. Over 8,800 lives were lost and damages and losses are estimated at US$7 billion or nearly one third of GDP. Reconstruction of housing, government buildings and infrastructure will open fiscal and balance of payments gaps in the coming years. Before the earthquake, Nepal’s macroeconomic performance was broadly favorable but the government’s weak budget implementation capacity held back growth and propped up the external position.
    Keywords: Balance of payments statistics;Balance of payments need;Debt sustainability analysis;Economic conditions;Economic indicators;External shocks;Nepal;Letters of Intent;Press releases;Rapid Credit Facility;Staff Reports;central bank, balance of payments, disbursement, budget, debt
    Date: 2015–08–04
  92. By: Javier Gómezâ€Pineda; Dominique M. Guillaume; Kadir Tanyeri
    Abstract: The paper presents a global model with systemic and country risks, as well as commodity prices.We show that systemic risk shocks have an important impact on world economic activity, with the busts in world output gap corresponding to unobserved systemic risk associated with major financial events. In addition, systemic risk shocks are shown to be important drivers of output gaps while country risk premium shocks can have important effects on the trade balance. Commodity prices, in particular the price of oil, are shown to be demand driven. The model performs well at one- and four-quarter horizons compared to a survey of analysts' forecasts. In addition, systemic risk shocks explain a large share of the forecast variance for the world output gap, country output gaps, the price of oil, and country risk premiums. The importance of systemic risk shocks lends support for financial surveillance with a systemic focus.
    Keywords: Central banks and their policies;Foreign exchange;International finance;Systemic risk;Capital flows;Financial linkages, Global imbalances Commodity prices, output, country risk, trade, Open Economy Macroeconomics, Forecasting and Simulation,
    Date: 2015–07–20
  93. By: Sohrab Rafiq
    Abstract: This paper uses a dataset on private-sector risk aversion as well as expectations of long-run growth and debt to explain trends in implied forward rates on government bonds in the G-7 countries. The results show, consistent with the literature, that a one-percent rise in the long-run projected debt-to-GDP ratio causes an increase in bond yields of a relatively modest 1-to-6 basis points. Shocks to growth expectations and risk aversion have been comparatively more successful in explaining the behavior of long-term rates. The findings imply that growth policies rather than long-run projections of fiscal outcomes may be more important in helping influence long-term borrowing costs.
    Keywords: Economic growth;Expectations;Public debt;time-variation, debt, interest, interest rates, forward rates, private sector debt, Monetary Policy (Targets, Instruments, and Effects), Open Economy Macroeconomics,
    Date: 2015–05–01
  94. By: Pablo Druck; Nicolas E. Magud; Rodrigo Mariscal
    Abstract: We document that, historically, although stronger growth in the U.S. increases growth in emerging markets, U.S. dollar appreciation (depreciation) cycles—which are highly persistent—mitigate (amplify) the impact on real GDP growth in emerging markets. We argue that the main transmission channel of the latter is through an income effect: as the dollar appreciates, commodity prices fall; weaker commodity prices depress domestic demand via lower real income; real GDP in emerging markets decelerates; and vice versa. These effects hold despite any potential expenditure-switching effect resulting from the relative (to the U.S. dollar) currency depreciation of emerging market economies. We also show the negative effect on emerging markets’ growth of U.S. interest rates beyond the effects of the U.S. real exchange rate and real GDP growth. Therefore, at the time of writing, emerging markets’ growth is expected to remain subdued reflecting, intera alia, the expected persistence of the strong dollar and the anticipated increased in the U.S. interest rates.
    Keywords: US dollar;Exchange rate appreciation;Exchange rate depreciation;Commodity price fluctuations;Demand;Economic growth;Emerging markets;Econometric models;Dollar appreciation cycles, growth in emerging markets.
    Date: 2015–07–29
  95. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: This 2015 Article IV Consultation highlights that Tonga’s economy is estimated to have grown by about 2 percent in FY2013/14 (year ending June) driven by agriculture and construction, following a contraction in 2012/13 mainly caused by the completion of a large capital project. The external position has strengthened, following large grants and remittance inflows, which have bolstered international reserves. Real GDP growth is expected to average 2–3 percent in FY2014/15–FY2019/20. Although the progress of reconstruction in the aftermath of 2014 Cyclone Ian is slower than expected, the coronation scheduled for July 2015 and preparations for the 2019 South Pacific Games will support economic activity over the next few years.
    Keywords: Economic growth;Debt sustainability analysis;Article IV consultation reports;Economic indicators;Millennium Development Goals;Monetary policy;Government expenditures;Fiscal reforms;Fiscal policy;Press releases;Staff Reports;Tonga;inflation, remittances, monetary fund, expenditure, revenue
    Date: 2015–04–30
  96. By: International Monetary Fund. European Dept.
    Abstract: This Selected Issues paper takes stock of structural reforms in Portugal from a firm-level perspective. Structural reforms were the main available policy tool to mend Portugal’s accumulated imbalances. Portugal’s macroeconomic toolbox was severely constrained by monetary union membership and spillover considerations. This paper discusses what structural reforms were supposed to achieve at the firm level. It documents a few stylized facts about Portuguese firms and describes the structural reform agenda. The paper also reports the results of a firm survey on the perceived effectiveness of the structural reforms.
    Keywords: Debt restructuring;Corporate sector;Portugal;Selected Issues Papers;Fiscal policy;Fiscal reforms;Global competitiveness;Labor markets;exporters, market, market reforms, labor market, devaluation
    Date: 2015–05–18
  97. By: Pascal Towbin; Sebastian Weber
    Abstract: Between 1996 and 2006 the U.S. has experienced an unprecedented boom in house prices. As it has proven to be diffcult to explain the large price increase by observable fundamentals, many observers have emphasized the role of speculation, i.e. expectations about future price developments. The argument is, however, often indirect: speculation is treated as a deviation from a benchmark. The present paper aims to identify house price expectation shocks directly. To that purpose, we estimate a VAR model for the U.S. and use sign restrictions to identify house price expectation, housing supply, housing demand, and mortgage rate shocks. House price expectation shocks are the most important driver of the boom and account for about 30 percent of the real house price increase. We also construct a model-based measure of exogenous changes in price expectations and show that this measure leads a survey-based measure of changes in house price expectations. Our main identification scheme leaves open whether expectation shifts are realistic or unrealistic. In extensions, we provide evidence that price expectation shifts during the boom were primarly unrealistic and were only marginally affected by realistic expectations about future fundamentals.
    Keywords: Housing prices;United States;Price increases;Expectations;Econometric models;Housing Market, House Price Expectations, Speculation, Housing Boom, VAR
    Date: 2015–07–30
  98. By: Xin Xu; Ahmed El-Ashram; Judith Gold
    Abstract: Economic Citizenship Programs (ECPs) have recently been proliferating, with large and potentially volatile inflows of investment and fiscal revenues generating significant benefits for small economies, but also posing substantial challenges. This paper discusses recent developments and implications of such programs for fiscal discipline and the real economy, including risks to macroeconomic and financial stability, with a focus on small state economies. It discusses the prudent management of these programs, overviews strategies to minimize risks to various sectors, and addresses potential governance and integrity challenges. The paper proposes a framework for managing inflows and savings from ECPs to contain macroeconomic risks, and it recommends the establishment of a sovereign wealth fund (SWF) where such revenues are large and persistent.
    Keywords: Dutch disease;St. Kitts and Nevis;Economic Citizenship Programs, Citizenship-by-Investment, Economic Residency Programs, Immigrant Investor Programs, Golden Visa, Sovereign Wealth Fund (SWF), National Development Funds, Macroeconomic Stability, Pacific Island Countries, investment, tax, investor, revenues, monetary fund, Globalization: Other, Taxation, Subsidies, and Revenues: Other Sources of Revenue, Exhaustible Resources and Economic Development, Pacific Island Countries.,
    Date: 2015–05–01
  99. By: International Monetary Fund. European Dept.
    Abstract: This Selected Issues paper examines inflation dynamics in Bulgaria from January 2012 to February 2015 and highlights some stylized facts about inflation in the country. January 2012 to February 2015 is the most relevant period for identifying factors contributing to recent deflation in Bulgaria, as well as their relative importance. Regression analysis suggests that during this period the inward spillover of low inflationary pressure from the European Union to Bulgaria has been the most significant factor, which was further exacerbated by consecutive electricity price cuts in 2013 and fast-falling global commodity prices, especially since late 2014.
    Keywords: Bulgaria;Bulgaria;Debt;Deflation;Corporate sector;Selected Issues Papers;Inflation;core inflation, commodity prices, exchange rate, demand
    Date: 2015–05–13
  100. By: Wojciech Maliszewski; Longmei Zhang
    Abstract: The paper analyzes the recent growth dynamics in China, evaluating both cyclical positions and long-term growth prospects. The analysis shows that financial cycles play a more important role than traditional inflation-based cycles in shaping the dynamics of growth. Currently, the ‘finance-neutral’ gap—our measure of the financial cycle—is large and positive, reflecting imbalances accumulated in the economy since the Global Financial Crisis. A period of slower growth is therefore both likely and needed in the near term to restore the economy to equilibrium. In the medium term, growth will slow as China moves closer to the technology frontier, but a steadfast implementation of reforms can ensure that China follows the path of the “Asia Tigers†and achieves successful convergence to high-income status.
    Keywords: China;Total factor productivity;potential growth, output gap, production, investment, inflation, credit, potential output, Macroeconomic Analyses of Economic Development,
    Date: 2015–05–27
  101. By: International Monetary Fund. European Dept.
    Abstract: This paper analyzes the debt sustainability in Greece. At the last review in May 2014, Greece’s public debt was assessed to be getting back on a path toward sustainability, though it remained highly vulnerable to shocks. By late summer 2014, with interest rates having declined further, it appeared that no further debt relief would have been needed under the November 2012 framework, if the program were to have been implemented as agreed. But significant changes in policies since then are leading to substantial new financing needs. To ensure that debt is sustainable with high probability, Greek policies will need to come back on track.
    Keywords: Debt sustainability analysis;Economic growth;External borrowing;Fiscal reforms;Greece;Privatization;Public debt;debt, interest, arrears, interest rates, monetary fund
    Date: 2015–07–02
  102. By: Nicolas End; Sampawende J.-A. Tapsoba; G. Terrier; Renaud Duplay
    Abstract: This paper examines the impact of deflation on fiscal aggregates. With deflation relatively rare in modern history, it relies mostly on the historical records, using a dataset panel covering 150 years and 21 advanced economies. Empirical evidence shows that deflation affects public finances mostly through increases in public debt ratios, reflecting a worsening in interest rate–growth differentials. On average, a mild rate of deflation increases public debt ratios by almost 2 percent of GDP a year, this impact being larger during recessionary deflations. Using a simulation model that accounts for composition effects and price expectations, we also find that, for European countries, a 2 percentage point deflationary shock in both 2015 and 2016 would lead to a deterioration in the primary balance of as much as 1 percent of GDP by 2019.
    Keywords: Deflation;Public finance;Fiscal policy;Fiscal analysis;Developed countries;Panel analysis;Fiscal policy, Deflation, Low inflation, Inflation, Public finances
    Date: 2015–07–28
  103. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: EXECUTIVE SUMMARY Major achievements have been made in modernizing the payment system. Bosnia and Herzegovina was the first country of the former Yugoslavia to dismantle the old payment system, leading to significant efficiency improvements and risk reduction. The Central Bank of Bosnia and Herzegovina played a key role in reducing transaction costs and the number of payment agencies. Risk was further reduced with the development and launch of the real-time gross settlement system for large-value payments and the giro clearing system for retail payments in 2001. Resiliency of the interbank payment system was demonstrated against the severe floods of May 2014, which had an impact on the real economy and parts of the financial services sector. The interbank payment system has functioned normally since its launch in 2001. Contingency arrangements were earlier strengthened with the development of a disaster recovery site located at a distant location from the primary site to ensure the resumption of critical operations in the event of a wide scale disruption. Plans to adopt the Principles of Financial Market Infrastructures of 2012 into the regulatory framework are at the early stages. The currency board arrangement has helped protect the payment system from credit risks. There is no credit risk due to pre-funding requirements in the real-time gross settlement system. Prohibition of the central bank from extending intraday credit and strict rules on the use and replenishment of reserve requirements has established strong discipline for commercial banks. This was tested with the provisional administration and liquidity management issues faced by some banks that helped contain settlement risks that could have led to potential systemic risks.
    Keywords: Bosnia and Herzegovina;Bosnia and Herzegovina;Capital markets;Financial Sector Assessment Program;Payment systems;Reports on the Observance of Standards and Codes;Securities markets;Securities regulations;settlement, securities, market, financial market
    Date: 2015–08–03
  104. By: Juliana Dutra Araujo; Antonio David; Carlos van Hombeeck; Chris Papageorgiou
    Abstract: Using a newly developed dataset this paper examines the cyclicality of private capital inflows to low-income developing countries (LIDCs) over the period 1990-2012. The empirical analysis shows that capital inflows to LIDCs are procyclical, yet considerably less procyclical than flows to more advanced economies. The analysis also suggests that flows to LIDCs are more persistent than flows to emerging markets (EMs). There is also evidence that changes in risk aversion are a significant correlate of private capital inflows with the expected sign, but LIDCs seem to be less sensitive to changes in global risk aversion than EMs. A host of robustness checks to alternative estimation methods, samples, and control variables confirm the baseline results. In terms of policy implications, these findings suggest that private capital inflows are likely to become more procyclical as LIDCs move along the development path, which could in turn raise several associated policy challenges, not the least concerning the reform of traditional monetary policy frameworks.
    Keywords: Capital flows;Low-income developing countries;Cyclicality, Emerging Markets, capital inflows, private capital, international capital, developing countries, Open Economy Macroeconomics, Macroeconomic Analyses of Economic Development, Emerging Markets.,
    Date: 2015–07–17
  105. By: Yoshiyasu Ono
    Abstract: In 1960s-1980s Japan enjoyed high economic growth. In the early 1990s, however, the growth rate drastically declined and thereafter Japan has been suffering secular stagnation. This paper proposes a dynamic macroeconomic model that can consistently explain such a drastic change in economic performance. Wealth preference plays an important role. In the early stage consumption grows at the same pace as productivity increases. Once consumption reaches a certain level, however, it deviates from the full-employment level and aggregate demand deficiency appears. After that the economic growth rate asymptotically approaches zero even if productivity keeps on increasing, and secular stagnation arises.
    Date: 2015–09
  106. By: Kyle F. Herkenhoff; Lee E. Ohanian
    Abstract: This paper documents that the time required to initiate and complete a home foreclosure rose from about 9 months on average prior to the Great Recession to an average of 15 months during the Great Recession and afterward. We refer to these changes as foreclosure delay. We also document that many borrowers who are in foreclosure ultimately exit foreclosure and keep their homes by making up for missed mortgage payments. We analyze the impact of foreclosure delay on the U.S. labor market as an implicit credit line from a lender to a borrower (mortgagor) within a search model. In the model, foreclosure delay provides unemployed mortgagors with additional time to search for a high-paying job. We find that foreclosure delay decreases mortgagor employment by about 0.75 percentage points, nearly doubles the stock of delinquent mortgages, increases the rate of homeownership by about 0.3 percentage points, and increases job match quality, as mortgagors search longer. Severe foreclosure delays, such as those observed in Florida and New Jersey, can depress mortgagor employment by up to 1.3 percentage points. The model results are consistent with PSID and SCF data that show that employment rates rise for delinquent mortgagors once the mortgagor is in the foreclosure process.
    JEL: E24 J0 R3
    Date: 2015–09
  107. By: Raja Almarzoqi; Sami Ben Naceur
    Abstract: In this paper, we use a bank-level panel dataset to investigate the determinants of bank interest margins in the Caucasus and Central Asia (CCA) over the period 1998–2013. We apply the dealership model of Ho and Saunders (1981) and its extensions to assess the extent to which high spreads of banks in the CCA can be related to bank-specific variables, to competition, and to macroeconomic factors. We find that interest spreads are affected by operating cost, credit risk, liquidity risk, bank size, bank diversification, banking sector competition, and macroeconomic policies; but the impact depends on the country.
    Keywords: Banking sector;Econometric models;Central Asia and the Caucasus;Cross country analysis;Panel analysis;Profit margins;Interest rates;Interest margins, Operating costs, Market power, Macroeconomic policies, bank, interest, banks, risk, credit, General,
    Date: 2015–04–29
  108. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: This paper discusses key findings of the Financial System Stability Assessment on Bosnia and Herzegovina (BiH). Economic and financial activity in BiH remains stuck in a low gear since the global financial crisis, reflecting weak external demand, tighter funding conditions, and deep-seated structural issues. Aggregate solvency and liquidity indicators appear broadly sound, but significant pockets of vulnerability exist. The banking system is more than 80 percent foreign-owned banks. The average regulatory capital adequacy ratio exceeded 16 percent as of end 2014. Decisive and timely actions to deal with weak banks are critical for preserving financial stability.
    Keywords: Bank resolution;Banks;Bosnia and Herzegovina;Capital markets;Currency boards;Financial safety nets;Financial sector;Financial system stability assessment;Insurance;Liquidity management;Reports on the Observance of Standards and Codes;Macroprudential Policy;bank, banking, risk
    Date: 2015–07–09
  109. By: Goodness C. Aye (Department of Economics, University of Pretoria Author-Email:; Mehmet Balcilar Author-Name-First Mehmet (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus); Rangan Gupta (Department of Economics, University of Pretoria); Anandamayee Majumdar (Soochow University Center for Advance Statistics and Econometric Research, Suzhou, China)
    Abstract: Forecasting aggregate retail sales may improve portfolio investors’ ability to predict movements in the stock prices of the retailing chains. Therefore, this paper uses 26 (23 single and 3 combination) forecasting models to forecast South Africa’s aggregate seasonal retail sales. We use data from 1970:01–2012:05, with 1987:01-2012:05 as the out-of-sample period. We deviate from the uniform symmetric quadratic loss function typically used in forecast evaluation exercises. Hence, we consider loss functions that overweight forecast error in booms and recessions to check whether a specific model that appears to be a good choice on average is also preferable in times of economic stress. To this end, we use the weighted RMSE and weighted version of the Diebold-Mariano tests to evaluate the different forecasts. Focussing on the single models alone, results show that their performances differ greatly across forecast horizons and for different weighting schemes. However, the combination forecasts models in general produced better forecasts and are largely unaffected by business cycles and time horizons.
    Keywords: seasonality; weighted loss; retail sales forecasting; combination forecasts; South Africa
    JEL: C32 C53 E32
    Date: 2014
  110. By: International Monetary Fund. European Dept.
    Abstract: This paper discusses the recommendations of the Sixth Post-program Monitoring Discussions with Iceland. Iceland recently updated its capital account liberalization strategy. The strategy takes a staged approach, starting with steps to address the balance-of-payments overhang of the old bank estates—prioritizing a cooperative approach with incentives—in a manner consistent with maintaining stability. Growth is accelerating in 2015 and is expected to reach 4.1 percent, backed by significant investment, wage- and debt relief-fueled consumption, and booming tourism. The general government is projected to record a surplus of 0.8 percent of GDP in 2015, helped by large one-offs. Small deficits are also expected over 2016–20.
    Keywords: Economic indicators;Financial sector;Debt sustainability analysis;Capital account liberalization;Post-program monitoring;Press releases;Staff Reports;Inflation;Iceland;Fiscal policy;Monetary policy;Labor markets;Wage increases;capital account, monetary fund
    Date: 2015–06–26
  111. By: Ali Alichi
    Abstract: The gap between potential and actual output—the output gap—is a key variable for policymaking. This paper adapts the methodology developed in Blagrave and others (2015) to estimate the path of output gap in the U.S. economy. The results show that the output gap has considerably shrunk since the Great Recession, but still remains negative. While the results are more robust than other existing methodologies, there is still significant uncertainty surrounding the estimates.
    Keywords: Potential output;United States;Macroeconomic Modeling, Output Gap, output, inflation, unemployment rate, Model Construction and Estimation, Monetary Policy (Targets, Instruments, and Effects),
    Date: 2015–06–30
  112. By: Mirko Abbritti (University of Navarra); Tommaso Trani (University of Navarra)
    Abstract: This paper develops a model of pricing dynamics in business to business relationships. The formation of business relationships is a process of search and matching between retailers and wholesalers in the product market. The size of each transaction and the related price are set through bilateral bargaining. There are three key factors that influence the reaction of prices and quantities to cost shocks: the persistence of the shocks, the adjustment of final goods production and the search externalities. These factors determine how firms adjust, whether through the intensive margin, through the extensive margin or through both. Based on this, we assess to what extent wholesale prices affect the allocation of consumption in closed economy and deliver expenditure switching in open economy.
    Date: 2014–11–01
  113. By: International Monetary Fund. African Dept.
    Abstract: This paper discusses Guinea’s Request for Debt Relief Under the Catastrophe Containment (CC) Window of the Catastrophe Containment and Relief (CCR) Trust. Since early 2014, Guinea has been experiencing an ongoing Ebola epidemic that has spread to several countries in the region. The immediate economic effect of the Ebola epidemic has been a pronounced slowdown in 2014. Performance under the Extended Credit Facility arrangement has been satisfactory, the difficult macroeconomic environment notwithstanding. The IMF staff supports the authorities’ request for assistance under the CC window of the CCR Trust given the nature of the public health disaster, and the ensuing financing needs to contain the disease and rehabilitate Guinea’s public health system.
    Keywords: Economic indicators;Emergency financing mechanism;External shocks;Balance of payments need;Debt relief;Staff Reports;Press releases;Guinea;Letters of Intent;debt, debt service, repayment, balance of payments
    Date: 2015–05–01
  114. By: Ezequiel Cabezon; Patrizia Tumbarello; Yiqun Wu
    Abstract: Reflecting diseconomies of scale in providing public goods and services, recurrent spending in small states typically represents a large share of GDP. For some small states, this limits the fiscal space available for growth-promoting capital spending. Small states generally face greater revenue volatility than other country groups, owing to their exposure to exogenous shocks (including natural disasters) and narrow production bases. With limited buffers, revenue volatility often results in procyclical fiscal policy as the econometric analysis shows. To strengthen fiscal frameworks, small states should seek to streamline and prioritize recurrent spending to create fiscal space for capital spending. The quality of spending could also be improved through public financial management reform and multiyear budgeting.
    Keywords: Expenditure efficiency;Fiscal framework;Small states;Pacific Island Countries;Fiscal policy;revenue volatility, procyclical policies, quality of spending, revenue, debt, expenditure, public spending, General,
    Date: 2015–06–19
  115. By: Martin D D Evans (Department of Economics, Georgetown University)
    Abstract: This paper examines the persistent deterioration in the international external position of the U.S. over the past 60 years. I develop a model without Ponzi schemes and arbitrage opportunities that accounts for both the secular rise and the cyclical variations in the U.S. international debt position. The model estimates quantify the role played by financial and real factors in driving these dynamics, and their impact on the steady state debt position. I find that financial factors raise the steady state debt level by three percent of GDP, and account for 80 percent the cyclical variations. In contrast, real factors associated with trade flows are the dominant drivers of the secular rise in the debt position. I argue that these empirical findings are at odds with recent models of global imbalances that focus on demographics and asymmetric financial development. They also represent a substantial challenge to the view that the U.S. external position is on a sustainable path.
    Keywords: Global Imbalances, External Positions, Current Accounts, Trade Flows, Valuation Effects, Stochastic Discount Factors, International Asset Pricing
    JEL: F31 F32 F34
    Date: 2015–08–19
  116. By: International Monetary Fund. African Dept.
    Abstract: CEMAC’s economic outlook has changed dramatically since the last discussions because of the significant decline in international oil prices. The financial sector is shallow, and financial intermediation and inclusion are limited. The regional institutions face considerable challenges, including from political interference and capacity constraints. Downside risks are important, as CEMAC is vulnerable to protracted low oil prices and a possible relapse in regional security crises.
    Keywords: Central African Economic and Monetary Community;Economic integration;Fiscal consolidation;External shocks;Economic growth;Oil prices;Millennium Development Goals;Monetary policy;Press releases;Staff Reports;investment, exchange, public investment, oil price
    Date: 2015–08–04
  117. By: Carlos Andrés BALLESTEROS RUIZ; Javier Andrés ROJAS AGUILERA
    Abstract: The influence of the international business cycle has grown larger during the past two decades, forcing worldwide policymakers to include the state of the world economy in their decision-making process. Colombia is far from being an exception, thus requires accurate measurements of the effects that some foreseeable shifts in the international dynamics could have over the local economic variables. This document attempts to provide such measurements trough the use of a Global VAR. It is found that the Colombian economy has grown more sensible to the international business cycle due to its increasing openness and its deepening association with the economies driving world growth.
    Keywords: International Business Cycles, Global VAR, Time Series, Colombia
    Date: 2015–06–04
  118. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: This 2015 Article IV Consultation highlights that Korea’s growth momentum that had been building since early 2013 has stalled. Average quarterly growth rate declined to about 0.5 percent in the last three quarters of 2014 from about 1 percent in the previous four quarters. A turning point was the April 2014 Sewol ferry accident, which had a surprisingly large and persistent impact on consumer and investor sentiment. Growth is projected to be in a range centered about 3 percent in 2015. The main external risks include slower-than-expected growth in Korea’s main trading partners, the impact of a persistently weak yen on Korean export industries, and side-effects from the global financial conditions.
    Keywords: Economic indicators;Economic growth;Balance of payments statistics;Article IV consultation reports;Fiscal policy;Fiscal reforms;Monetary policy;Korea, Republic of;Press releases;Staff Reports;monetary fund, debt, share, market, balance sheets
    Date: 2015–05–22
  119. By: International Monetary Fund. European Dept.
    Abstract: This 2015 Article IV Consultation highlights that Bulgaria achieved modest economic growth in 2014, which is expected to continue in 2015, albeit at a lower rate. Consumer prices declined by an average 1.6 percent in 2014, among the sharpest contractions in the European Union, but are projected to turn positive late in the year. The banking system has shown substantial resilience to the damage to confidence resulting from the bank failure. The budget targets a 3 percent of GDP deficit in 2015, and a further 0.5 percentage point reduction per year in coming years. Measures to improve the composition and quality of expenditure and mitigate contingent liabilities arising from state-owned enterprises remain the key.
    Keywords: Economic indicators;Debt sustainability;Banking sector;Bulgaria;Article IV consultation reports;Fiscal policy;Fiscal reforms;Governance;Reserves adequacy;Press releases;Staff Reports;monetary fund, economic developments, policy credibility, governance issues
    Date: 2015–05–13
  120. By: International Monetary Fund. African Dept.
    Abstract: This Selected Issues paper presents an analysis of change in Zambia’s mining fiscal regime. Foreign investment has revived Zambia’s mining sector. However, its mining sector’s direct contribution to government revenues has been low. Reflecting persistent concerns about the low contribution of the mining sector to budget revenues, the government has amended the fiscal regime many times over the last seven years. The 2015 budget introduced major changes to the mining fiscal regime. The authorities estimate that the change would boost budget revenues from the mining sector by about 1 percent of GDP, based on an assumption that the change would have no adverse impact on production.
    Keywords: Commodity pricing policy;Banking sector;Economic growth;Fiscal policy;Oil;Mining sector;Selected Issues Papers;Zambia;tax, income tax, tax rate, revenue, revenues
    Date: 2015–06–16
  121. By: Laura Jaramillo; Alexandre Chailloux
    Abstract: We attempt to disentangle income and wealth effects on consumption by disaggregating both the different types of income and wealth. We estimate a consumption function for a panel of quarterly data for 14 advanced economies spanning 1998 to 2012, using an error correction specification. We find a significant long-term relation between consumption and the different components of income and wealth. While fiscal policy had direct effects on consumption, the analysis suggests that wealth effects were sizeable, and therefore need to be kept in mind when analyzing consumption trends going forward.
    Keywords: Financial assets;Developed countries;Econometric models;Consumption;Cross country analysis;Fiscal policy;Income distribution;Income;Private consumption;Panel analysis;Time series;wealth, housing assets, household debt, assets, debt, Consumer Economics: Empirical Analysis, Household,
    Date: 2015–05–26
  122. By: Francesco Grigoli; Alexander Herman; Klaus Schmidt-Hebbel
    Abstract: This paper analyzes saving patterns and determinants in Latin America and the Caribbean (LAC), including key policy variables and regimes. The review of previous empirical studies on LAC saving reveals contradictions and omissions. This paper presents empirical results of an extensive search of determinants of private and public saving rates, adding previously neglected variables (including different measures of key external prices and macroeconomic policy regimes), in linear form and in interactions with other saving determinants. It analyzes statistical differences in saving determinants between LAC and the rest of the world in a nested econometric framework, and discusses differences across three country subgroups within LAC. The results highlight commonalities and differences in saving behavior between LAC and other world regions, as well as within LAC, identifying the role of key policy variables and regimes.
    Keywords: Chile;Colombia;Consumption;Costa Rica;Dominica;Dominican Republic;Argentina;Antigua and Barbuda;Bahamas, The;Barbados;Belize;Bolivia;El Salvador;Ecuador;Jamaica;Latin America;Nicaragua;Haiti;Guyana;Guatemala;Grenada;Honduras;Peru;Panama;Paraguay;Saint Kitts and Nevis;Saint Vincent and the Grenadines;Saint Lucia;Uruguay;Suriname;Trinidad and Tobago;private saving, public saving, saving, income, tax, Models with Panel Data, General,
    Date: 2015–05–18
  123. By: International Monetary Fund. African Dept.
    Abstract: This paper discusses Chad’s First Review Under the Extended Credit Facility (ECF) Arrangement, Request for Waivers of Nonobservance of Performance Criteria (PC), and Request for Modification of PC, and Augmentation of Access. Performance under the ECF supported program was broadly satisfactory in 2014, with four of six quantitative PCs observed as of end-December, and sustained implementation of the structural reform agenda. The authorities have adopted decisive measures to address large oil revenue shortfalls and close the external financing gap, particularly through a significant fiscal adjustment in 2015 and beyond. The IMF staff supports the completion of the first review under the ECF arrangement.
    Keywords: Chad;Extended Credit Facility;Economic indicators;Fiscal policy;Fiscal reforms;HIPC Initiative;Letters of Intent;Staff Reports;Press releases;Performance criteria modifications;Performance criteria waivers;revenue, budget, oil prices, economic developments, monetary fund
    Date: 2015–05–13
  124. By: International Monetary Fund. Statistics Dept.
    Abstract: This paper discusses the findings and recommendations of the Report on Observance of Standards and Codes (ROSC)—Data Module for Oman. It is observed that Oman has made significant progress in the compilation and dissemination of macroeconomic statistics since the 2004 ROSC mission. The main progress has been achieved in monetary statistics, price indices, and balance of payments, in particular the introduction of the producer price index, and improvements in data relevance, transparency, classification, and sectorization. The report also recognizes the need for Oman to move to higher data standards and identifies shortcomings in statistical practices and products that remain to be addressed.
    Keywords: Consumer price indexes;Data quality assessment framework;External sector;Monetary statistics;National accounts;General Data Dissemination System;Government finance statistics;Producer price indexes;Reports on the Observance of Standards and Codes;Oman;Statistics;data, price, information, users, metadata
    Date: 2015–06–29
  125. By: Schnabel, Isabel; Seckinger, Christian
    Abstract: Using industry data from Eurostat and applying the Rajan-Zingales methodology, we investigate the real growth effects of banking sector integration in the European Union. Our sample stretches from 2000 until 2012 and includes the phase of rapid financial integration before the global financial crisis as well as the following phase of financial fragmentation and bank deleveraging. We find evidence that banking sector integration had a more than four times stronger growth effect during the crisis than in normal times. Growth effects are also stronger in times of domestic bank deleveraging. We conclude that concerns of European policy makers about fragmentation in the European banking sector are justified and that future reintegration is an important building block of future growth perspectives in the European Union.
    Keywords: cross-border lending; economic growth; European Union; financial crisis; financial fragmentation; financial integration; foreign banks; Rajan-Zingales methodology
    JEL: F36 G01 G15
    Date: 2015–09
  126. By: Sara De la Rica; Yolanda F. Rebollo-Sanz
    Abstract: The Great Recession has had a disproportionately negative effect on working men compared to working women in many OECD countries and led to gender convergence in aggregate unemployment rates. In this paper we seek the sources of this recent convergence by using Social Security records on individuals to study the determinants of unemployment ins and outs over the course of a whole business cycle, i.e. 2000-2013. We focus on Spain – a country hit hard by unemployment increases in downturns. Our results indicate that unemployment outs are crucial in understanding changes in unemployment rates in Spain. Furthermore, the huge drop in unemployment outs in the recession, particularly for men, has led to unprecedented levels of long-term unemployment, which has come to account for 64% of total unemployment. Negative state dependence emerges as a key barrier to job access for the long-term unemployed and hence the rate of unemployment is expected to remain high for many years, even if there is a strong recovery.
    Date: 2015–09
  127. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: This 2015 Article IV Consultation highlights that Mongolia’s medium- to long-term prospects are promising given its large natural resources. In the near term, however, the country continues to face balance-of-payments (BOP) pressures on account of low foreign direct investment and weak commodity prices, as well as expansionary macro policies. Imports have now started to taper off and, with the first phase of the Oyu Tolgoi copper and gold mine now in operation, exports have picked up. The trade balance has thus improved, but the overall BOP remains weak. The executive directors have supported ongoing efforts to foster high, inclusive growth by improving the investment climate, enhancing competitiveness, and promoting economic diversification.
    Keywords: Debt sustainability analysis;Economic growth;Article IV consultation reports;Banking sector;Exchange rate assessments;Economic indicators;Monetary policy;Mining sector;Natural resources;Mongolia;Fiscal policy;Fiscal reforms;Press releases;Staff Reports;deficit, investment, monetary fund, current account deficit, debt
    Date: 2015–04–30
  128. By: International Monetary Fund. European Dept.
    Abstract: This paper discusses Serbia’s First Review Under the Stand-By Arrangement. The program is broadly on track. All end-March 2015 performance criteria and indicative targets were met with comfortable margins. All end-March structural benchmarks were implemented, although with a delay, and all prior actions were met. The economy has stabilized, on the back of lower oil prices and stronger than expected trading partner growth. Inflationary pressures remain subdued. The external position has strengthened. Despite monetary easing, credit growth remains sluggish, and nonperforming loans continue to pose a challenge. Risks to the program come from possible spillovers from regional developments and increase in market volatility, as well as delayed implementation of structural reforms.
    Keywords: Economic indicators;Balance of payments statistics;Serbia;Staff Reports;Press releases;Fiscal policy;Fiscal reforms;Monetary policy;Letters of Intent;Stand-by arrangement reviews;inflation, tax, balance of payments, monetary fund, revenue
    Date: 2015–06–26
  129. By: Pinto, Santiago (Federal Reserve Bank of Richmond); Sarte, Pierre-Daniel G. (Federal Reserve Bank of Richmond); Sharp, Robert (Federal Reserve Bank of Richmond)
    Abstract: We study diffusion indices constructed from qualitative surveys to provide real-time assessments of various aspects of economic activity. In particular, we highlight the role of diffusion indices as estimates of change in a quasi extensive margin, and characterize their distribution, focusing on the uncertainty implied by both sampling and the polarization of participants' responses. Because qualitative tendency surveys generally cover multiple questions around a topic, a key aspect of this uncertainty concerns the coincidence of responses, or the degree to which polarization comoves, across individual questions. We illustrate these results using micro data on individual responses underlying different composite indices published by the Michigan Survey of Consumers. We find a secular rise in consumer uncertainty starting around 2000, following a decade-long decline, and higher agreement among respondents in prior periods. Six years after the Great Recession, uncertainty arising from the polarization of responses in the Michigan Survey stands today at its highest level since 1978, coinciding with the weakest recovery in U.S. post-war history. The formulas we derive allow for simple computations of approximate confidence intervals, thus affording a more complete real-time assessment of economic conditions using qualitative surveys.
    Keywords: Economic Uncertainty; Qualitative Data; Diffusion Index
    JEL: C18 C46 C83 D80 E32 E66
    Date: 2015–09–03
  130. By: International Monetary Fund. African Dept.
    Abstract: This paper discusses Côte d’Ivoire’s Seventh Review Under the Extended Credit Facility (ECF) Arrangement and Request for Modification of Performance Criteria (PCs). Performance under the IMF-supported program continued to be strong. Over 2012–14, the growth in real GDP per capita has reached 20 percent. All PCs and all but one indicative targets for end-2014 were met. Significant progress has been made toward improving the business climate and the tax administration, and some inroads have been made toward public bank restructuring. The IMF staff supports the authorities’ request for completion of the seventh ECF review and for the modification of the PCs for end-June 2015 and indicative targets.
    Keywords: Extended Credit Facility;Economic growth;Economic indicators;Budgets;Balance of payments statistics;Debt management;Performance criteria modifications;Press releases;Staff Reports;Government expenditures;Fiscal reforms;Fiscal policy;Letters of Intent;deficit, monetary fund, fiscal deficit, investment, debt
    Date: 2015–06–12
  131. By: Michal Horváth (University of York); Matus Senaj (Council for Budget Responsibility); Zuzana Siebertova (Council for Budget Responsibility); Norbert Svarda (Council for Budget Responsibility)
    Abstract: The paper provides a quantitative assessment of the consequences of departing from a flat-tax system in the context of Slovakia. A behavioural microsimulation model of the labour supply is embedded into a general equilibrium framework with search and matching frictions. Some recently implemented changes in the tax system leave aggregate labour market indicators as well as inequality measures virtually unaffected. We also examine hypothetical revenue-neutral reforms that would significantly increase the progressivity of the system through graduated marginal tax rates. We find that there are narrow limits to what policy makers could accomplish through such reforms in terms of employment and equality of income. Hence, an income tax reform should at best be seen as a complementary tool to other initiatives promoting such objectives. Moreover, we highlight an important trade-off: income tax reforms that promote employment may harm growth.
    Keywords: flat tax, microsimulation, general equilibrium, search and matching, labour supply elasticity
    JEL: E24 H24 H31 J22
    Date: 2015–08
  132. By: International Monetary Fund. European Dept.
    Abstract: Euro Area Policies: Selected Issues
    Keywords: Monetary policy;Economic growth;Inflation;Banking sector;Loans;Bank supervision;Fiscal reforms;Selected Issues Papers;Euro Area;debt, investment, unemployment, productivity
    Date: 2015–07–27
  133. By: Alvaro Hernando CHAVES CASTRO
    Abstract: A partir de una batería de indicadores sobre el comportamiento agregado de la actividad agrícola, se realiza un análisis de los principales hechos estilizados del sector durante el periodo 1975 a 2013, y su relación con las políticas implementadas por el gobierno a lo largo de estos 37 años. El trabajo realiza una estimación y análisis de los ciclos del sector a partir de la metodología de BLANCHARD y QUA (1989) en donde se estima un VAR bivariado para las variables PIB y desempleo del sector. La estimación del VAR, permite realizar un ejercicio de impulso – respuesta relacionada con los efectos sobre el desempleo y la producción de choques de oferta y demanda a los cuales ha estado sujeto el nivel de actividad agrícola. Finalmente, se realiza un análisis de co-movimientos del comportamiento de variables de oferta y demanda y el PIB del sector agrícola, mediante la estimación de las correlaciones de forma contemporánea y rezagada con el fin de identificar que variables de oferta y demanda del sector son pro cíclicas o contra cíclicas.
    Keywords: Ciclo, productividad multifactorial, hecho estilizado, Vector Autoregresivo VAR
    JEL: E32 C32
    Date: 2015–06–04
  134. By: Luiza Antoun de Almeida
    Abstract: The recent financial crisis highlighted that balance sheet exposures can be a major shock transmission channel. Using sectoral accounts data in combination with data from the Coordinated Portfolio Investment Survey, International Investment Position, and BIS this paper estimates bilateral exposures between financial and non-financial sectors in three different financial instruments within and across G-4 economies (Euro Area, Japan, U.K. and U.S.). The generated financial networks represent a powerful tool for assessing financial stability, as they allow for the identification of systemically important sectors. The analysis suggests that after the financial crisis bilateral exposures in debt securities have increased, while exposures in loans and equities have declined. Shock simulations reveal that the vulnerability of the financial sector to the government sector has increased considerably since the outbreak of the financial crisis.
    Keywords: Cross country analysis;Debt securities;Euro Area;Financial instruments;Financial sector;Financial stability;Loans;Japan;International financial markets;Nonbank financial sector;Stocks;United Kingdom;United States;Balance sheet exposures, cross-border exposures, Data Gaps Initiative (DGI), financial networks, sectoral accounts, debt, financial crisis, Financial Aspects of Economic Integration, Financial Markets and the Macroeconomy, Government Policy and Regulation,
    Date: 2015–05–19
  135. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: This paper discusses the results of the Financial System Stability Assessment on the United States made under the Financial Sector Assessment Program. It is found that welcome steps have been taken in strengthening the financial system. The Financial Stability Oversight Council now provides a useful forum for coordination, the regulatory perimeter has expanded, information sharing among agencies has improved, supervisory stress testing is leading changes in risk measurement and management, and new resolution powers have been established. However, new pockets of vulnerabilities have emerged, partly in response to the continuing search for yield. This requires a continuing focus on strengthening the micro and macroprudential framework.
    Keywords: United States;Macroprudential Policy;Insurance;Financial sector;Financial system stability assessment;Financial safety nets;Deposit insurance;Capital markets;Asset management;Bank resolution;Banks;market, financial system, markets
    Date: 2015–07–07
  136. By: Etienne Lehmann (CRED (TEPP) University Panthéon Assas, Paris 2); Paola L. Montero Ledezma (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Bruno Van der Linden (FNRS and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This article examines unemployment disparities and efficiency in a densely populated economy with two job centers and workers distributed between them. We introduce commuting costs and search-matching frictions to deal with the spatial mismatch between workers and firms. In a decentralized economy job-seekers do not internalize a composition externality they impose on all the unemployed. With symmetric job centers, a change in the distribution of the workforce can lead to asymmetric equilibrium outcomes. We calibrate the model for Los Angeles and Chicago Metropolitan Statistical Areas. Simulations suggest that changes in the workforce distribution have non-negligible effects on unemployment rates, wages, and net output, but cannot be the unique explanation of a substantial mismatch problem.
    Keywords: Spatial mismatch, commuting, urban unemployment, externality
    JEL: J64 R13 R23
    Date: 2015–08–26
  137. By: Salim M. Darbar; Xiaoyong Wu
    Abstract: This paper presents case studies of macroprudential policy in five jurisdictions (Hong Kong SAR, the Netherlands, New Zealand, Singapore, and Sweden). The case studies describe the institutional framework, its evolution, the use of macroprudential tools, and the circumstances under which the tools have been used. The paper shows how macroprudential policy is conducted under a heterogeneous set of institutional frameworks. In all cases macroprudential tools have been used to address risks in the housing market. In addition, some of them have moved to enhance the resilience of their banks to more general cyclical and structural risks.
    Keywords: Central banks and their policies;Cross country analysis;Credit;Hong Kong SAR;Hong Kong Special Administrative Region of China;Macroprudential Policy;New Zealand;Netherlands;Singapore;Sweden;macroprudential, instruments, tools, mortgage, central bank, property, markets, debt, Financial Markets and the Macroeconomy, Government Policy and Regulation,
    Date: 2015–06–19
  138. By: Serkan Arslanalp; Dennis P. J. Botman
    Abstract: Portfolio rebalancing is a key transmission channel of quantitative easing in Japan. We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds. Nonetheless, the BoJ could deliver continued monetary stimulus by extending the maturity of its JGB purchases or by scaling up private asset purchases. We quantify the impact of rebalancing on capital outflows and discuss JGB market signals that can be indicative of limits being within reach.
    Keywords: Monetary policy;International financial markets;Capital outflows;Central bank policy;Japan;Asset management;Bond markets;quantitative easing, portfolio rebalancing, speed limits, portfolio, market, inflation, markets, General, Portfolio Choice, speed limits.,
    Date: 2015–08–03
  139. By: International Monetary Fund. African Dept.
    Keywords: Economic growth;Current account deficits;Central banks;Commercial banks;Exchange rate assessments;Selected Issues Papers;Payment systems;Reserves adequacy;Liquidity;West Africa;West African Economic and Monetary Union;Tariff structures;reserve, deficit, exchange, current account deficit, monetary fund
    Date: 2015–04–13
  140. By: Hamid Raza (School of Economics, University of Limerick); Gylfi Zoega (Department of Economics, University of Iceland, Reykjavik and Department of Economics, Birkbeck College); Stephen Kinsella (School of Economics, University of Limerick)
    Abstract: We investigate the Feldstein and Horioka (1980) hypothesis for Iceland. First, we analyse the saving-investment (S-I) correlation for the period of restricted capital mobility between 1960 and 1994. We then add a period of free capital mobility between 1994 and 2008 and estimate the correlation for the period 1960-2008. Finally, we extend our analysis to the 2008 to 2014 period, when capital controls were imposed in response to the financial crisis. Finding cointegration between savings and investment for all the three regimes, the evidence shows that the S-I correlation is stronger during the period of capital controls that prevailed in 1960-1994 and becomes weaker when the capital mobility regime is included. However, the correlation weakens further when the post-crisis regime of capital controls is included, which implies that savings and investment are not related during the recent period of crisis and capital controls. The implications of our findings for post-crisis policy making are discussed.
    Keywords: Feldstein-Horioka puzzle, capital mobility, financial crisis.
    JEL: E2
    Date: 2015–08–31
  141. By: Alexandra Rush (Reserve Bank of Australia)
    Abstract: Understanding the life of banknotes is important to a currency issuer's forward planning. Without accurate predictions of banknote life, there is a risk of incurring the economic costs of overproducing and storing excess banknotes or conversely, in an extreme case, of not being able to meet the public's demand. The life of a banknote, however, is not directly observed and must be estimated – a process complicated by the manner in which banknotes are issued and circulated. Often currency issuers use simple turnover formulas to estimate the mean or median life of banknotes; however, such measures tend to be particularly volatile over time as they cannot take into account shocks to currency demand, or changes to currency issuer policies that affect distribution arrangements or the quality of circulating banknotes. This paper proposes an alternative way of studying banknote life by estimating survival models, which are commonly used in studying life expectancies in medicine or the duration of events in economics. These models can produce estimates of central tendency that are much less volatile over time and provide information on the probability that banknotes survive over time. The models' predictions of banknote survival are intuitive and the results are consistent with samples of circulating and unfit banknotes.
    Keywords: banknotes; banknote life; currency; turnover; survival analysis; nonlinear regression
    JEL: C41 E42 E58
    Date: 2015–08
  142. By: Krueger, Dirk; Ludwig, Alexander
    Abstract: In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.
    Keywords: education subsidy; progressive taxation; transitional dynamics
    JEL: E62 H21 H24
    Date: 2015–09
  143. By: Concepción Verdugo Yepes; Peter L. Pedroni; Xingwei Hu
    Abstract: This paper studies the transmission of crime shocks to the economy in a sample of 32 Mexican states over the period from 1993 to 2012. The paper uses a panel structural VAR approach which accounts for the heterogeneity of the dynamic state level responses in GDP, FDI and international migration flows, and measures the transmission via the impulse response of homicide rates. The approach also allows the study of the pattern of economic responses among states. In particular, the percentage of GDP devoted to new construction and the perception of public security are characteristics that are shown to be associated with the sign and magnitude of the responses of economic variables to crime shocks.
    Keywords: Foreign direct investment;Mexico;Mexico;Migrations;Panel analysis;Regional shocks;Time series;Structural vector autoregression;Crime, Panel Structural VAR, homicides, homicide, security, crimes, Macroeconomic Analyses of Economic Development, Analysis of Growth, Development, and Changes, Illegal Behavior and the Enforcement of Law,
    Date: 2015–06–04
  144. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: This Note discusses the framework for banking resolution and crisis prevention and management in Samoa, and provides comments and recommendations for its improvement. As part of the Financial Sector Assessment Program for Samoa, this technical note evaluates the current legal powers and operational capabilities at the disposal of the financial sector authorities for confronting serious banking problems, and for crisis prevention and management. Comments and recommendations are provided, aimed at increasing the authorities’ capacity to address such problems in a way that minimizes damages to the financial system and reduces costs for the tax payer and for the economy as a whole. Key Findings and Recommendations The current regulatory framework to deal with financial institutions (FIs) should be reformed. The Central Bank of Samoa (CBS) has issued “Prudential Statements†containing some prudential rules, ratios and limits applicable to FIs, but there are no general standards for their enforcement, which is done on a purely discretional case-by-case basis. The powers from the Central Bank Act (CBA) are not strong enough to enable the CBS to take enforcement actions.
    Keywords: Crisis prevention;Deposit insurance;Banks;Bank legislation;Bank resolution;Liquidity;Financial Sector Assessment Program;Financial institutions;Risk management;Samoa;deposit, insurance
    Date: 2015–08–06
  145. By: Fernando MESA PARRA
    Abstract: This paper focuses on the decomposition of real wages in Colombia both by workers' ages and by cohorts, which overlap over time. The paper analyses how the Colombia's labour structure has undergone important changes in the period 1982-2007. This period has been characterized by a demographic transition that has tilted the balance from a relatively young population to an older one. The effects of capital accumulation have been estimated and modelled considering the presence of ever more sophisticated machinery, usually replacing less-skilled, younger workers, in relation to older and more qualified ones. In general real wages present a curved shape for each generation, as is acknowledged in the life-cycle hypothesis, according to which people generally start their working life with low incomes and rising debts and then obtain higher income and accumulate assets.
    Keywords: Demographic trends, Macroeconomic effects, Wage levels andstructure, Wage differential, Intergenerational income distribution.
    JEL: J11 J23 E24
    Date: 2015–05–20
  146. By: Task Force on IMF Issues of the International Relations Committee of the European System of Central; L´Hotellerie-Fallois, Pilar; Balteanu, Irina; Moreno, Pablo; Urquizu, Beatriz; Janssens, Caroline; Vincent, Evelien; Sedlacek, Petr; Brüggemann, Axel; Haupt, Felix; Keeney, Mary; Deanaz, Geneviève; Paternò, Francesco; Frost, Jon; Whitaker, Simon; McKay, Julie; Ritter, Raymond
    Abstract: The International Monetary Fund has significantly improved its surveillance of the EU and the euro area, along the lines suggested by the Fund’s 2011 Triennial Surveillance Review and in application of its 2012 Integrated Surveillance Decision. Nonetheless, there is still margin for further enhancing IMF surveillance of the EU and the euro area. This report by the Task Force on IMF Issues of the International Relations Committee of the European System of Central Banks was prepared with the aim of contributing to the preparation of and debate on the 2014 IMF Triennial Surveillance Review. JEL Classification: F42, F53
    Keywords: Bretton Woods, IMF, international financial architecture, international organisation, surveillance
    Date: 2015–01
  147. By: Zeynel Abidin Ozdemir (Department of Economics, Gazi University); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Aysit Tansel (Department of Economics, Middle East Technical University)
    Abstract: This paper shows that the structural breaks are an important characteristic of the monthly labor force participation rate (LFPR) series of Australia, Canada and the USA. Therefore we allow for endogenously determined multiple structural breaks in the empirical specifications of fractionally integrated ARMA model. The findings indicate that contrary to the previous research the LFPRs of Australia, Canada and the USA are stationary implying that the informational value of the unemployment rates about the behavior of labor markets and the causes of joblessness are useful.
    Keywords: Labor Force Participation Rates, Structural Change, Stationarity
    JEL: C22 E24 J21
    Date: 2014
  148. By: Andres Rius (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Carolina Roman (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: Latin America and the Caribbean experienced outstanding economic growth in the last 10-15 years, which has been accompanied -and to some extent, driven- by increases in private consumption (CEPAL 2014). These higher levels of consumption have extended the access to valuable goods and service for less favored segments of the income scale, and luckily they have not crowded out investment. However, as it is in the conventional wisdom in Latin America, given certain conditions, consumption booms may lead to another crisis. This article organizes and presents most recently available evidence and interpretations from the literature, to critically describe what is known and what is not regarding the behavior of agents, and the pertinent prevention and response policies to stimulate savings, and keep consumption sustainable.
    Keywords: consumption, Latin American and the Caribbean, economic growth and development
    JEL: N16 E21 O11
    Date: 2015–08
  149. By: T. Dohmen; H. Lehmann; N. Pignatti
    Abstract: We use the panel data of the German Socio-Economic Panel (SOEP) and of the Ukrainian Longitudinal Monitoring Survey (ULMS) to investigate whether risk attitudes have primary (exogenous) determinants that are valid in different stages of economic development and in a different structural context, comparing a mature capitalist economy and a transition economy. We then analyze the stability of the risk measures over time. Between 2007 and 2012 we have the Great Recession, which had a mild impact in the German labor market while it had a more profound impact on the Ukrainian labor market. This enables us to investigate whether and how the crisis impacted on the risk attitudes in the two countries. By focusing on self-employment we also investigate whether the reduced willingness to take risks as a consequence of the Great Recession affects labor market dynamics and outcomes.
    JEL: J64 J65 P50
    Date: 2015–09
  150. By: Simas Kucinskas
    Abstract: I revisit the Diamond-Dybvig model of liquidity insurance in the presence of hidden trades. The key result is that in this environment deposit-taking banks are not necessary for the efficient provision of liquidity. Mutual funds are constrained efficient when supplemented with the same government liquidity regulation that is required to make a banking system constrained efficient. However, whereas banks are potentially subject to costly panics, mutual funds are not run-prone and hence superior from a welfare perspective if runs happen with a non-zero probability.
    Keywords: liquidity creation; liquidity insurance; hidden trades; bank runs; mutual funds; narrow banking; financial stability
    JEL: D91 E61 G21 G23 G28
    Date: 2015–08
  151. By: International Monetary Fund. African Dept.
    Abstract: This paper discusses Mali’s Third Review Under the Extended Credit Facility Arrangement, Request for Waiver of Performance Criteria (PCs), and Request for Modification of PCs. Program performance was mixed at end-December 2014 but improved during the first quarter of 2015. In spite of the implementation of measures to strengthen public financial management during the last quarter of 2014, the PCs for end-2014 relating to gross tax revenue and bank and market financing of the government were not met owing to administrative weaknesses at the customs administration and a conflict with importers. The IMF staff recommends concluding the third program review, supports the waivers requested by the authorities, and modification of PCs.
    Keywords: Extended Credit Facility;Economic indicators;Fiscal reforms;Fiscal policy;Government expenditures;Letters of Intent;Millennium Development Goals;Mali;Staff Reports;Performance criteria waivers;Performance criteria modifications;Press releases;Revenues;tax, revenue, monetary fund, financial management
    Date: 2015–06–16
  152. By: D'Artis Kancs (European Commission – JRC - IPTS); Pavel Ciaian (European Commission – JRC - IPTS); Rajcaniova Miroslava (Slovak University of Agriculture)
    Abstract: This paper identifies and analyzes BitCoin features which may facilitate Bitcoin to become a global currency, as well as characteristics which may impede the use of BitCoin as a medium of exchange, a unit of account and a store of value, and compares BitCoin with standard currencies with respect to the main functions of money. Among all analyzed BitCoin features, the extreme price volatility stands out most clearly compared to standard currencies. In order to understand the reasons for such extreme price volatility, we attempt to identify drivers of BitCoin price formation and estimate their importance econometrically. We apply time-series analytical mechanisms to daily data for the 2009-2014 period. Our estimation results suggest that BitCoin attractiveness indicators are the strongest drivers of BitCoin price followed by market forces. In contrast, macro-financial developments do not determine BitCoin price in the long-run. Our findings suggest that as long as BitCoin price will be mainly driven by speculative investments, BitCoin will not be able to compete with standard currencies.
    Keywords: BitCoin, virtual currency, exchange rate, supply and demand, financial indicators, attention-driven investment
    JEL: E31 E42 G12
    Date: 2015–09
  153. By: Zsoka Koczan
    Abstract: In this paper we analyze how Western Balkans public finances adapted to the boom-bust cycle. Large capital inflows into emerging European economies during the mid-2000s resulted in rapid economic growth and convergence to EU income levels. This also resulted in improved fiscal positions of most countries, on the back of strong revenue performance. Yet, since the onset of the global economic crisis, many countries have struggled to adjust to the new situation of lower external financing and lower growth.
    Keywords: Albania;Bosnia and Herzegovina;Croatia;Macedonia, former Yugoslav Republic of;Montenegro;Serbia;Kosovo;Budget deficits;Albania;Economic growth;Government expenditures;Public debt;Fiscal policy;Transition economies;Cross country analysis;Debt;Western Balkans, fiscal policies, deficit, transition, tax, revenues, expenditures, revenue, General, General, Performance and Prospects,
    Date: 2015–07–24
  154. By: Rachel F Wang; Timothy Irwin; Lewis K Murara
    Abstract: Although there are several measures of fiscal transparency, none provides satisfactory information on certain issues of macroeconomic relevance, including whether fiscal data are available for all of general government, whether the government reports a balance sheet, and whether spending and revenue are reported on a cash or accrual basis. Drawing on government finance statistics reported to the IMF, this paper presents a new database of fiscal transparency for 186 countries in 2003–13 and derives from it indices of the overall comprehensiveness of fiscal statistics as well as specific indices of the coverage of public institutions, fiscal flows, and fiscal stocks, respectively. It finds evidence of gradual improvement, most notably in the coverage of institutions, but most countries’ reporting remains far from comprehensive
    Keywords: Public finance;Fiscal reporting;Fiscal transparency;Fiscal transparency;Government finance statistics;Cross country analysis;Budgets;Accounts;transparency, government finance, central government, General,
    Date: 2015–08–05
  155. By: International Monetary Fund. European Dept.
    Abstract: This paper discusses Albania’s Fourth Review Under the Extended Arrangement and Request for Modification and Waiver of Applicability of Performance Criteria (PC). Economic recovery is under way, but growth remains below potential. The low oil price is expected to have a muted effect on growth and on the balance of payments, as pass-through is weak and Albania is only a small net oil exporter. The program is on track. All end-December 2014 and continuous PCs and most indicative targets were met, with comfortable margins. The IMF staff supports the completion of the Fourth Review under the Extended Arrangement, as well as the modification and waiver of applicability of PC.
    Keywords: Economic indicators;Electric power;Extended arrangement reviews;Fiscal consolidation;Bank supervision;Balance of payments statistics;Albania;Albania;Debt sustainability analysis;Performance criteria modifications;Performance criteria waivers;Press releases;Staff Reports;Fiscal reforms;Monetary policy;Letters of Intent;arrears, debt, inflation, monetary fund, deficit
    Date: 2015–05–19
  156. By: Gustavo Adolfo HERNANDEZ DIAZ; Norberto ROJAS DELGADILLO
    Abstract: En los últimos años se ha hecho evidente y llegado a un consenso alrededor del déficit de infraestructura del país con respecto a países similares de América Latina, y el tema se ha convertido en protagonista de la política pública, de tal suerte que el actual Gobierno ha emprendido una serie de ajustes institucionales y de construcción de un plan de inversiones para poner al día en materia de infraestructura al país. En este estudio se avanzó en la estimación de los impactos del mencionado plan de inversiones tendrá sobre el crecimiento, el empleo y la tasa de desempleo de las regiones colombianas, representadas por los departamentos. Se encontró, que la inversión en infraestructura vial planeada para los próximos años, simulada en un modelo de equilibrio general, tiene un efecto sobre el crecimiento del producto que va desde 0.4 pp en los primeros años hasta 1.3 puntos al final del horizonte de simulación (2020). Dicho efecto es diferente por cada departamento. Adicionalmente, al final del período de análisis las tasas de desempleo en los departamentos se podrían disminuir entre 0.4 y 1.5 p.p adicionales por efectos de los efectos dinámicos de la mejor infraestructura vial y su efecto en el crecimiento de las regiones.
    Keywords: Infraestructura, Crecimiento Económico, Empleo, Tasa dedesempleo, Equilibrio general.
    JEL: E24 H54 O47 R13
    Date: 2015–06–11
  157. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: Statistical Appendix - Abstract cannot be created.
    Keywords: Gross domestic product;Government expenditures;Revenues;Exports;Imports;Financial soundness indicators;Energy sector;Consumer price indexes;Balance of payments;Statistical annexes;Brunei Darussalam;expenditure, budget, revenue, goods
    Date: 2015–06–10
  158. By: Bittschi, Benjamin; Duppel, Saskia
    Abstract: Using the introduction of the euro as a natural experiment, we provide economy-wide evidence for money illusion based on declared donations from German administrative income tax data. Our results suggest a magnitude of the money illusion effect between 2.4% and 7.6%. Compared to previous studies on money illusion in the course of the euro currency changeover this effect size is significantly lower. We trace this back to the more comprehensive donation data in our study compared to hitherto studied face-to-face collections, which makes our results less prone to "power of the ask" and social pressure effects.
    Keywords: money illusion,euro introduction,charitable giving,natural experiment
    JEL: D12 E40
    Date: 2015
  159. By: Mankart, Jochen; Rodano, Giacomo
    Abstract: Every year 400,000 entrepreneurs fail and 60,000 file for personal bankruptcy. The option to declare bankruptcy provides entrepreneurs with insurance against the financial consequences of business failures. However, it comes at the cost of worsened credit market conditions. In this paper, we construct a quantitative general equilibrium model of entrepreneurship to show that the presence of secured credit in addition to unsecured credit substantially alters the trade-off between insurance and credit conditions. A lenient bankruptcy law always worsens credit conditions, in particular for poor entrepreneurs. If secured credit is not available, their credit conditions are so bad that many prefer to become workers. In that case, we show that the optimal bankruptcy law is very harsh because the benefits from better credit conditions dominate the worsened insurance. However, if secured credit is available, entrepreneurs who might be rationed out of the unsecured credit market can still obtain secured credit. Therefore, they can run larger firms, which makes entrepreneurship more attractive. Since the presence of secured credit lowers the cost of a generous bankruptcy law, we find that the optimal law is lenient in this case; exactly the opposite result as obtained in the model version without secured credit.
    Keywords: Personal Bankruptcy,Entrepreneurship,Occupational Choice
    JEL: M13 K10 O41 E20
    Date: 2015
  160. By: Fabian Lindner
    Abstract: There is a consensus among the majority of economists that the credit supply is limited by current household saving. If governments or foreigners ran deficits, they would absorb this limited saving so that firms could not borrow any longer and had to reduce their investment. This is the "Loanable Funds'' theory. Ben Bernanke's "Global Saving Glut'' thesis is based on this view. According to Bernanke, the US depended on South East Asian and commodity exporting countries' scarce saving to finance the US real estate boom. Using simple accounting rules, the article shows however that credit is never limited by current saving. Often, the exact opposite it true: people can only save after others have taken on credit and paid incomes. This is also the case with the US and its trade partners and creditors: since non-Americans accept the US-Dollar as a means of payment - which only the US can produce - Americans give credit to themselves to finance their current account deficits. Each Dollar that non-Americans invest in the US has either been earned or borrowed in the US before. By their deficits, the US does not absorb scarce saving but allows other countries to increase their income and saving.
    Keywords: Investment, Finance, Saving, Current Account Imbalances, Credit Supply, Global Saving Glut, Loanable Funds Theory, Financial Crisis
    JEL: B2 B4 E2 E5 F3
    Date: 2015
  161. By: Conroy, Niall
    Date: 2015–05
  162. By: Diewert, Erwin; Inklaar, Robert
    Abstract: The paper introduces a new method for simultaneously comparing industry productivity levels across countries and over time. The new method is similar to the method for making multilateral comparisons of Caves, Christensen and Diewert (1982b) but their method can only compare gross outputs across production units and not compare real value added of production units across time and space. The present paper uses the translog GDP methodology for measuring productivity levels across time that was pioneered by Diewert and Morrison (1986) and adapts it to the multilateral context. The new method is illustrated using an industry level data set and shows that productivity dispersion across 38 countries between 1995 and 2011 has decreased faster in the traded sector than in the non-traded sector. In both sectors, there is little evidence of decreasing distance to the productivity frontier.
    Keywords: Productivity, index numbers, Purchasing Power Parities, multilateral comparisons, convergence, value added functions, efficiency, world production fro
    JEL: C43 C82 D24 E01 E23 E31 F14 O47
    Date: 2015–09–03
  163. By: Chadi Abdallah; David Coady; Sanjeev Gupta; Emine Hanedar
    Abstract: Achieving fiscal consolidation without undermining growth and poverty-reduction efforts is a key policy challenge in many countries. Using India as an illustration, this paper shows how a mix of well-designed taxation and spending policies can help address these challenges. On the tax side, the analysis focuses on increasing consumption taxes on goods with negative consumption externalities. On the spending side, some of the additional revenues from the tax reform are allocated to scaling up key social transfer programs. Substantial additional gains are possible if the increased social transfers can be accompanied by improved targeting.
    Keywords: India;Fiscal consolidation;fiscal redistribution, efficient consumption taxes, social transfers, targeting, income, tax, prices, share, taxes, General, Asia including Middle East,
    Date: 2015–07–13
  164. By: International Monetary Fund. European Dept.
    Abstract: Russian Federation: Selected Issues
    Keywords: Exchange rate regimes;Exchange rates;Financial sector;Fiscal policy;Fiscal sustainability;Inflation targeting;Monetary policy;Oil prices;Russian Federation;Russian Federation;Selected Issues Papers;revenues, perpetuity, future, exchange
    Date: 2015–08–03
  165. By: Prakash Loungani; Saurabh Mishra
    Abstract: There is a striking variation among the G-20 countries in the extent to which employment and unemployment respond to growth over the course of a year. In some countries (for example, Australia, Korea and South Africa), labor markets are quite responsive to overall economic conditions: when growth picks up, so does employment, and unemployment falls. In other countries (for example, Brazil, China, Turkey) the response is quite muted: measured employment and unemployment barely budge when growth picks up or slows down. These differences among countries have not changed much since the Great Recession. Thus, a pick-up in growth will result in more jobs, but the extent of job crea-tion in the short run could vary significantly across countries.
    Keywords: G20, Growth, employment, unemployment, jobs, labor, market, okun, coefficient, recession, demand
    Date: 2015–09
  166. By: Thomas Bollinger (Department of Business and Economics, University of Basel, Switzerland); Axel Kind (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper investigates risk premiums embedded in commodity convenience yields, i.e., returns on convenience-claim investments. The analysis is conducted in two steps. First, monthly convenience yields are extracted from a broad sample of commodity futures by using a three-factor model. Second, a multi-factor asset pricing model with conditional betas is estimated to determine risk premiums embedded in convenience-claim returns. The empirical analysis is carried out on monthly cross-sections of 22 commodities in the period from January 1991 to December 2011. It reveals the existence of significant premiums embedded in convenience yields for systematic risk factors typically related to other asset classes. While the predictability of the risk premiums via instrumental variables is limited, changes in conditional betas are found to forecast variations in convenience yields.
    Keywords: Commodity Futures, Convenience Yield, Term Structure, Risk Premiums
    JEL: G12 G13 E44
    Date: 2015–08–10
  167. By: Carlos Góes
    Abstract: Both sides of the institutions and growth debate have resorted largely to microeconometric techniques in testing hypotheses. In this paper, I build a panel structural vector autoregression (SVAR) model for a short panel of 119 countries over 10 years and find support for the institutions hypothesis. Controlling for individual fixed effects, I find that exogenous shocks to a proxy for institutional quality have a positive and statistically significant effect on GDP per capita. On average, a 1 percent shock in institutional quality leads to a peak 1.7 percent increase in GDP per capita after six years. Results are robust to using a different proxy for institutional quality. There are different dynamics for advanced economies and developing countries. This suggests diminishing returns to institutional quality improvements.
    Keywords: Financial institutions;Development;Economic growth;Developed countries;Developing countries;Econometric models;Panel analysis;Institutions, Panel VAR, Economic Development, gdp, gdp per capita, results, Semiparametric and Nonparametric Methods, Models with Panel Data, Institutions and Growth, Economic Development.,
    Date: 2015–07–27
  168. By: Roman Kononenko
    Abstract: This study uses Vector Autoregression (VAR) Methodology as well as Vector Error Correction (VEC) Methodology to examine the existence and direction of causality between economic growth and IMF lending for Ukraine. The paper examines the IMF lending data for the period of 1991-2010. Robust empirical analysis indicates that IMF lending has a negative effect of on Ukraine's economic growth in the short term. Policy implications of this finding are that, despite short-run decline in economic growth, IMF lending can result in a long-run sustainable growth for Ukraine. For this, policymakers need to ensure that fund's money are used not only to cover budget's deficit, but also to finance institutional reforms.
    Date: 2015–09
  169. By: Sokolovska, Olena; Sokolovskyi, Dmytro
    Abstract: The article aims to estimate the efficiency of value-added tax (VAT) collection in the countries worldwide. In a large part of developing and transition countries VAT performs primarily fiscal function, being the main source of budget revenue (for example in 2014 in Ukraine the revenue obtained from VAT was 51% of total tax revenue, in Moldova it achieved 58,2%). At the same time the shadow economy particularly in form of corruption and tax evasion that exists in these countries leads to a considerable tax gap which in turns reduces VAT efficiency. So, the present study intends to define the VAT efficiency ratio in countries of the world. Preliminary theoretical and methodological analysis allowed us to use for calculations a modification of widespread formula, considering in a certain way a tax evasion process. We investigated the dependence between VAT efficiency ratio and size of shadow sector and level of corruption in countries. This research will allow further investigation of the strategies for establishing of optimal VAT rates depending on efficiency of its levying and size of taxpayers which in turns will contribute to raising efficiency of VAT administration, to the reduction of shadow sector and to the economic growth.
    Keywords: VAT, efficiency, shadow sector, corruption
    JEL: C10 D73 E26 H21
    Date: 2015
  170. By: Awasthi, I. C.; Shrivastav, Puneet Kumar
    Abstract: This paper attempts to analyze the social and economic disparities across social groups in rural Uttar Pradesh. The paper clearly demonstrates that the structure of rural economy in India is charecterised by deeply ingrained prejudices and social discrimination. The four-village study undertaken in one of the most populated states in India, Uttar Pradesh, clearly reveals that there is a huge disparity in terms of various social and economic indicators and the so-called high growth has hardly filtered in bettering their lives. The paper is based on primary data collected from census survey of villages exploring socio-economic disparities across social groups by using decomposition models. The results evidently lend credence to our postulations that a large proportion of disadvantaged groups are prone to multiple deprivations, both in the society and in labour markets. Our inquiry has revealed this phenomenon clearly. From the policy point of view, it is therefore an imperative necessity to have direct and focused provision of basic human requirements in terms of education, employment and income of the state. Such direct policy interventions are of paramount necessity for the state to ensure convergence and inclusive growth process to take place on a sustained basis.
    Keywords: Social inequalities, socially disadvantaged groups, discrimination, economic and social disparities, social group inequalities, caste inequalities, class-caste relations, decomposition models, multiple deprivations, regional inequalities.
    JEL: D63 E24
    Date: 2015–07–15

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