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on Macroeconomics |
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Issue of 2016‒09‒11
138 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Vladimir Asriyan; Luca Fornaro; Alberto Martín; Jaume Ventura |
| Abstract: | We propose a model of money, credit and bubbles, and use it to study the role of monetary policy in managing asset bubbles. In this model, bubbles pop up and burst, generating fluctuations in credit, investment and output. Two key insights emerge from the analysis. First, the growth rate of bubbles, which is driven by agents’ expectations, can be set in real or in nominal terms. This gives rise to a novel channel of monetary policy, as changes in the inflation rate affect the real growth rate of bubbles and their effect on economic activity. Crucially, this channel does not rely on contract incompleteness or price rigidities. Second, there is a natural limit on monetary policy’s ability to control bubbles: the zero-lower bound. When a bubble crashes, the economy may enter into a liquidity trap, a regime in which agents shift their portfolios away from bubbles - and the credit that they sustain - to money, reducing intermediation, investment and growth. We explore the implications of the model for the conduct of “conventional” and “unconventional” monetary policy, and we use the model to provide a broad interpretation of salient macroeconomic facts of the last two decades. |
| Keywords: | Bubbles, monetary policy, liquidity, traps, financial frictions |
| JEL: | E32 E44 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:921&r=mac |
| By: | Wieland, Volker; Afanasyeva, Elena; Kuete, Meguy; Yoo, Jinhyuk |
| Abstract: | The global financial crisis and the ensuing criticism of macroeconomics have inspired researchers to explore new modeling approaches. There are many new models that deliver improved estimates of the transmission of macroeconomic policies and aim to better integrate the financial sector in business cycle analysis. Policy making institutions need to compare available models of policy transmission and evaluate the impact and interaction of policy instruments in order to design effective policy strategies. This paper reviews the literature on model comparison and presents a new approach for comparative analysis. Its computational implementation enables individual researchers to conduct systematic model comparisons and policy evaluations easily and at low cost. This approach also contributes to improving reproducibility of computational research in macroeconomic modeling. Several applications serve to illustrate the usefulness of model comparison and the new tools in the area of monetary and fiscal policy. They include an analysis of the impact of parameter shifts on the effects of fiscal policy, a comparison of monetary policy transmission across model generations and a cross-country comparison of the impact of changes in central bank rates in the United States and the euro area. Furthermore, the paper includes a large-scale comparison of the dynamics and policy implications of different macro-financial models. The models considered account for financial accelerator effects in investment financing, credit and house price booms and a role for bank capital. A final exercise illustrates how these models can be used to assess the benefits of leaning against credit growth in monetary policy. |
| Keywords: | model comparison,model uncertainty,monetary policy,fiscal policy,policy robustness,macro-financial models |
| JEL: | E17 E27 E32 E44 E52 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:imfswp:107&r=mac |
| By: | Lasitha R. C. Pathberiyay (School of Economics, The University of Queensland, St Lucia, Brisbane, Australia) |
| Abstract: | The nominal interest rates were at zero level in the recent past in many countries across the globe. It has been widely debated recently what a central bank should do to stimulate the economy when the nominal interest rate is at the zero lower bound (ZLB). The optimal monetary policy literature suggests that monetary policy inertia, i.e. committing to continue zero interest regime even after the ZLB is not binding, is a way to get the economy out of recession. In this paper, I examine whether this result holds when monetary policy has not only the conventional demand-side effect but also a supply-side effect on the economy. To accomplish this objective, I incorporate the cost channel of monetary policy into an otherwise standard new Keynesian model and evaluate the optimal monetary policy at the ZLB. The study revealed some important insights in the conduct of the optimal monetary policy in a cost channel economy at the ZLB. First, the discretionary policy requires central banks to keep interest rates at the zero lower bound for longer in a cost channel economy compared to no-cost channel economies. This is because, in cost channel economies, the deflation is high and persistent due to a larger negative demand shock than that found in no-cost channel economies. Further, cost channel economies introduce a policy trade-o between inflation and output gap. Under commitment policy, the simulation exercise shows that the central bank is able to terminate the zero interest rate regime earlier in a cost channel economy than otherwise. The reason for that is, in a cost channel economy, the private sector has inflated inflationary expectations when the central bank is planning to conduct a tight monetary policy. This result is in contrast to the results found under discretionary policy. It was also revealed that the cost channel generates substantially high welfare losses, under both discretionary and commitment policies. Accordingly, abstracting the cost channel in these types of models can lead to under estimation of welfare losses. |
| Keywords: | optimal monetary policy, zero rates on nominal interest rates, cost channel of monetary policy, new Keynesian model, liquidity trap |
| JEL: | E31 E52 E58 E61 |
| Date: | 2016–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:568&r=mac |
| By: | Alice Albonico; Alessia Paccagnini; Patrizio Tirelli |
| Abstract: | This paper investigates the role of fiscal policies over the aggregate EMU business cycle. Previous studies, based on the assumption of non-separability between public and private consumptions, obtain a large public consumption multiplier, a small fraction of non-Ricardian households and, consequently, a relatively small multiplier for public transfers. We provide motivations for assuming separability and, on these grounds, we estimate a relatively large share of non-Ricardian households. As a result, we obtain that both multipliers are large. We also find that, in spite of their potentially strong effects, fiscal policies were substantially muted during the EMU years. This result is confirmed even for the post 2007 period. In fact fiscal policies did not complement the monetary policy stimulus in response to the financial crisis. Further, we cannot detect any substantial aggregate effect of austerity measures. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth. |
| Keywords: | DSGE; Limited asset market participation; Bayesian estimation; Euro area; Business cycle; Monetary policy; Fiscal policy |
| JEL: | C11 C13 C32 E21 E32 E37 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201612&r=mac |
| By: | Sebastiaan Pool |
| Abstract: | This paper examines how the materialization of credit defaults affects the real economy. I estimate a DSGE model including banks, firms and financial frictions using euro area data. The estimation results show that a positive credit default shock, which is identified as an unanticipated increase in credit default losses, complicates monetary policy because output falls while inflation goes up. The monetary authority must choose between stabilizing output and inflation and is therefore less effective. Inflation increases slightly because firms experience besides a demand contraction also a cost-push effect when banks increase the lending rate. Countercyclical capital buffers can in this case complement conventional monetary policy but there is a trade-off: they effectively attenuate macroeconomic fluctuations, but increase the persistence of the slump as banks rebuild their capital more slowly. A bank recapitalization overcomes this trade-off and significantly reduces macroeconomic fluctuations. |
| Keywords: | Banking; Credit risk; Credit defaults; Countercyclical Capital Buffer; Bayesian Estimation |
| JEL: | E44 E51 E52 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:518&r=mac |
| By: | Tevdovski, Dragan; Petrevski, Goran; Bogoev, Jane |
| Abstract: | We analyse the effects of fiscal and monetary policies in two South Eastern European (SEE) economies with currency pegs (Croatia and Macedonia) estimated by the Bayesian Vector Autoregression. The main results of the study are as follows: Fiscal tightening leads to economic expansion in Macedonia and a decline in economic activity in Croatia. In both countries fiscal tightening leads to a decline in inflation and money market rates. Monetary tightening leads to output contraction and a decline in inflation in both countries. We find opposite reaction of fiscal authorities to a monetary shock: monetary contraction is accompanied by fiscal tightening in Croatia and by loose fiscal policy in Macedonia. |
| Keywords: | Fiscal Policy, Monetary Policy, Bayesian VAR |
| JEL: | E52 E58 E62 E63 |
| Date: | 2016–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73461&r=mac |
| By: | Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg) |
| Abstract: | This paper provides background information and basic descriptive statistics for a representative survey of the New Zealand population conducted on our behalf by Research New Zealand in May 2016. The survey addresses important fiscal and monetary policy issues, including: (1) public preferences for public debt and fiscal consolidation; (2) awareness of the government’s Fiscal Strategy Report; (3) citizens’ monitoring of and reaction to inflation and their inflation expectation formation; (4) knowledge and support for the Policy Target Agreement between the Reserve Bank of New Zealand and the government; (5) trust in economic institutions; and (6) indicators for (macro)economic literacy, that is, objective and subjective knowledge about variables and institutions relevant for macroeconomic policy. |
| Keywords: | Household survey, New Zealand, Fiscal policy, Public debt, Monetary policy, Public preferences, Economic literacy |
| JEL: | E52 E58 E62 H31 Z18 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201630&r=mac |
| By: | De Koning, Kees |
| Abstract: | Developed economies rely on their financial sector for their well being, which, as a corollary, can be severely compromised by a poorly functioning financial sector. The financial crisis of 2007-2008 was caused by the collective financial sector in the U.S. Their collective mortgage production in 2003 was $1.1 trillion, equivalent to over 16% of the $6.9 trillion outstanding mortgage levels as at the end of 2003. If the 2003 mortgage production was allocated over new housing starts, each new home would have been financed with a mortgage of $635,000, while the average U.S. home sale price that year was $246,300. In 2001, the Fed lowered its effective funds rate from 5.98% to 1.82%; in the following two years the rate was dropped further to 0.98%. Such action may have been inspired by the low economic growth rate in 2001, which turned negative in the third quarter. What the Fed did not react to was the massive growth in annual mortgage production, which had already started in 1998. In a continuing demonstration of benign neglect, the lowering of the Fed funds rate from 2001-2003 only emboldened the financial sector, which fuelled the annual mortgage production even faster over the period 2003-2006. Home mortgage loans are mostly granted to individual households and especially in large numbers to working class households. Such households rely on their income levels to repay such mortgages. When house prices grow faster than CPI inflation and incomes, - up to 38% higher than CPI inflation over the years 1997-2006 – working class household’s finances can become rapidly overstretched. In 2006 mortgage borrowers started to get into trouble as the foreclosure filings show. By 2007, this affected trading in mortgage bond funds and by 2008 a full scale banking crisis was unfolding. The harm that the financial sector had wreaked on household finances was having a potent economic effect in the real sector: 45% of all mortgagors faced with foreclosure proceedings, 7.6 million job losses, wages growth below CPI inflation levels, 6.1 million home repossessions, a rapid decline in the home ownership rate, a substantial loss in the savings for a pension pot and a doubling of government debt levels. The reaction of the Fed was to save nearly all the banks, implement a quantitative easing program of some $4.2 trillion and keep interest rates at rock bottom levels, none of which helped the most vulnerable of the protagonists in the global financial crisis: working class households. |
| Keywords: | financial crisis, working class households, U.S. home mortgages, U.S. home ownership levels,employment and unemployment, labor force participation rate, median household income levels, pension savings, U.S. National Mortgage Bank, early warning traffic light system, home mortgage quality control system |
| JEL: | D1 D14 E3 E32 E5 E58 E6 |
| Date: | 2016–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73502&r=mac |
| By: | Angela Abbate; Sandra Eickmeier; Esteban Prieto |
| Abstract: | We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the "missing disinflation" during the Great Recession. We apply a vector autoregressive model to US data and identify financial shocks through sign restrictions. Our main finding is that expansionary financial shocks temporarily lower inflation. This result withstands a large battery of robustness checks. Moreover, negative financial shocks helped preventing a deflation during the crisis. We then explore the transmission channels of financial shocks relevant for inflation, and find that the cost channel explains the inflation response. A policy implication is that financial shocks that move output and inflation in opposite directions may worsen the trade-off for a central bank with a dual mandate. |
| Keywords: | Financial shocks, inflation dynamics, monetary policy, financial frictions, cost channel, sign restrictions |
| JEL: | E31 E44 E58 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-53&r=mac |
| By: | Lee, Seungduck |
| Abstract: | This paper examines the effect of monetary policy on the liquidity premium, i.e., the market value of the liquidity services that financial assets provide. To guide the empirical analysis, I set up a monetary search model in which bonds provide liquidity services in addition to money. The theory predicts that money supply and the nominal interest rate are positively correlated with the liquidity premium, but the latter is negatively correlated with the bond supply. The empirical analysis over the period from 1946 and 2008 confirms the theoretical findings. This indicates that liquid bonds are substantive substitutes for money and the opportunity cost of holding money plays a key role in asset price determination. The model can rationalize the existence of negative nominal yields, when the nominal interest rate is low and liquid bond supply decreases. |
| Keywords: | asset price, money search model, liquidity, liquidity premium, money supply |
| JEL: | E31 E41 E51 E52 G12 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73533&r=mac |
| By: | Paul Hubert (OFCE, Sciences Po); Fabien Labondance (Université de Bourgogne Franche-Comté, CRESE) |
| Abstract: | We explore empirically the theoretical prediction that waves of optimism or pessimism may have aggregate effects, in the context of monetary policy. We investigate whether the sentiment conveyed by ECB and FOMC policymakers in their statements affect the term structure of private short-term interest rate expectations. First, we quantify central bank tone using a computational linguistics approach. Second, we identify sentiment as exogenous shocks to these quantitative measures using an augmented narrative approach following the information friction literature. Third, we estimate the impact of sentiment on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model. We find that sentiment shocks increase private interest rate expectations around maturities of one and two years. We also find that this effect is non-linear and depends on the state of the economy and on the characteristics (precision, sign and size) of the sentiment signal. |
| Keywords: | Animal spirits, Optimism, Confidence, Central bank communication, Interest rate expectations, ECB, FOMC |
| JEL: | E43 E52 E58 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2016-07&r=mac |
| By: | Camelia Minoui (International Monetary Fund); Charles Abuka; Ronnie K. Alinda; Jose-Luis Peydro; Andrea F. Presbitero |
| Abstract: | We examine the bank lending channel in Uganda, a developing country where monetary policy transmission may be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system. Our analysis employs a supervisory loan-level dataset and focuses on a short period during which the policy rate rose by 1,000 basis points and then came down by 1,100 basis points. We find that an increase in interest rates reduces the supply of bank credit both on the extensive and intensive margins, and there is significant pass-through to retail lending rates. We document a strong bank balance sheet channel, as the lending behavior of banks with high capital and liquidity is different from that of banks with low capital and liquidity. Finally, we show the impact of monetary policy on real activity across districts depends on banking sector conditions. Overall, our results indicate significant real effects of the bank lending channel in developing countries. |
| Keywords: | Monetary policy transmission; Bank leading channel; Bank balance sheet channel, Developing countries |
| JEL: | E42 E44 E52 E58 |
| Date: | 2015–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:nva:unnvaa:wp09-2015&r=mac |
| By: | Yashin, Pete |
| Abstract: | A new macroeconomic model is presented, which makes it possible to take a fresh look both at the long-term equilibrium growth process and at short-term deviations from it. The possibility of the existence of an optimal equilibrium path, which maximizes profits, is shown. Short-term deviations from the equilibrium path are described by monetized function of output, which is analytically derived here. The function has Cobb-Douglas form, but it is not neoclassical production function. Hence the strong technological progress (the key factor from the supply side) is not enough for the rapid productivity growth. A commensurate increase in relevant factor from the demand side (wage level) is required. This statement explains relatively slow labor productivity growth, which is observed in the developed countries. The consequence of the equality of aggregate demand and supply (respectively, total savings and investment) is the commensurability of profit and investment. Savings (profit) and investment are recognized as self-consistent, i.e. are both a course and consequence for each other, and these two values should not differ greatly. Noncompliance of this rule (large profit which is not reinvested) contributes to inequality and other instability factors, and may be the cause of the recent global financial crisis and subsequent stagnation. |
| Keywords: | Harrod-Domar equation, Kaldor-Pazinetti model, Pazinetti theorem, Golden rule of capital accumulation, dynamic inefficiency, path-dependent equilibrium, production function, Cobb-Douglas function, Uzawa capital intensity condition |
| JEL: | E0 E10 E11 |
| Date: | 2016–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73544&r=mac |
| By: | Benchimol, Jonathan (Bank of Israel); Fourçans, André (Essec Business School) |
| Abstract: | Since the beginning of the financial crisis, a lively debate has emerged regarding which monetary policy rule the Fed (and other central banks) should follow, if any. To clarify this debate, several questions must be answered. Which monetary policy rule best the historical data? Which monetary policy rule best minimizes economic uncertainty and the Fed’s loss function? Which rule is best in terms of household welfare? Among the different rules, are NGDP growth or level targeting rules a good option, and when? Do they perform better than Taylor-type rules? To answer these questions, we use Bayesian estimations to test the Smets and Wouters (2007) model under nine different monetary policy rules with US data from 1955 to 2015 and over three different sub-periods. We find that when considering only the central bank’s loss function, the estimates generally indicate the superiority of NGDP level targeting rules, whatever the period. However, if other criteria are considered, the central bank’s objectives are not consistently met by a single rule for all periods. |
| Keywords: | Monetary policy; NGDP targeting; Taylor rule; DSGE model |
| JEL: | E32 E52 E58 |
| Date: | 2016–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:essewp:dr-16010&r=mac |
| By: | Michal Brzoza-Brzezina; Marcin Kolasa; Mateusz Szetela |
| Abstract: | In early 2015, the policy (open market operations) rate of Narodowy Bank Polski was reduced to an all-time low of 1.5%. At the same time, prices of consumer goods and services dropped by 1.5% in year-on-year terms. This raised concerns that Poland might become the next country to hit the zero lower bound (ZLB) constraint on nominal interest rates. The purpose of this paper is to examine the scale of this risk and its possible consequences. According to our results, the odds of the Polish economy hitting the ZLB remain low, despite having risen considerably in 2014-15. At the same time, the consequences of such a scenario would be substantial as the ZLB would amplify the economy’s responses to adverse demand shocks and make their impact more persistent. The current level of the inflation target (2.5%) protects the Polish economy against the zero lower bound to a signifficant degree. However, its potential reduction would significantly increase the likelihood that this threat materializes. |
| Keywords: | zero lower bound, Polish monetary policy, small open economy |
| JEL: | E43 E47 E52 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2016013&r=mac |
| By: | Kamiar Mohaddes; M. Hashem Pesaran |
| Abstract: | The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the US and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices tends relatively quickly to lower interest rates and inflation in most countries, and increase global real equity prices. The effects on real output are positive, although they take longer to materialize (around 4 quarters after the shock). We then re-examine the effects of low oil prices on the US economy over different sub-periods using monthly observations on real oil prices, real equity prices and real dividends. We confirm the perverse positive relationship between oil and equity prices over the period since the 2008 financial crisis highlighted in the recent literature, but show that this relationship has been unstable when considered over the longer time period of 1946-2016. In contrast, we find a stable negative relationship between oil prices and real dividends which we argue is a better proxy for economic activity (as compared to equity prices). On the supply side, the effects of lower oil prices differ widely across the different oil producers, and could be perverse initially, as some of the major oil producers try to compensate their loss of revenues by raising production. Taking demand and supply adjustments to oil price changes as a whole, we conclude that oil markets equilibrate but rather slowly, with large episodic swings between low and high oil prices. |
| Keywords: | Oil prices, equity prices, dividends, economic growth, oil supply, global oil markets, and international business cycle |
| JEL: | C32 E17 E32 F44 F47 O51 Q43 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-56&r=mac |
| By: | Hiermeyer, Martin |
| Abstract: | If expansionary fiscal policy is inflationary, expansionary fiscal policy forces an inflation-targeting central bank to be somewhat more restrictive in its monetary policy. This altered central bank policy comes at a cost in terms of output which has to be calculated against the output gain achieved by the expansionary fiscal policy. |
| Keywords: | Fiscal Policy |
| JEL: | E62 E63 |
| Date: | 2016–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73491&r=mac |
| By: | Asif Mahmood (State Bank of Pakistan); Muhammad Zuhair Munawar (State Bank of Pakistan) |
| Abstract: | In this paper we perform a textual analysis of monetary policy statements issued during the past ten years by State Bank of Pakistan and compare them with policy reviews of seven selected central banks from regional, emerging and advanced economies. Broadly, we divided our analysis into three parts. In the first part, we attempt to estimate the contribution of macroeconomic contents in the monetary policy analysis of selected central banks. The second part deals with the decomposition of macroeconomic contents in driving the policy decisions. In the last section, we attempt to measure the forward-looking content in the monetary policy reviews and also their predictive power. Key findings suggest that, across the sample, trends in inflation and developments in external sector play an important role in driving the monetary policy stance. Also, it is found that the inflation targeting central banks have more forward-looking content in their policy reviews than non-inflation targeters. On the basis of empirical estimation, the former central banks are also found to be more proactive in adjusting the policy stance to given macroeconomic conditions and their outlook. |
| Keywords: | monetary policy, central bank, communication |
| JEL: | E52 E58 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:78&r=mac |
| By: | Kosten, Dmitri |
| Abstract: | The modern system of centralized governance and hierarchical control of socio-economic relations is coming to an end – the society is transitioning to peer-to-peer model of socio-economic relations. The peer-to-peer model of socio-economic relations is the model of the mesh network. Such model does not fit into the modern system of centralized governance and control. The source of many modern social vices are derived from the artificially created separation of money from contractual obligation. In reality money and contract is one entity. Contract and money cannot exist in harmony without each others. There is no money without contract, and there is no contract without money. Those concepts cannot exist without each other. The Bitcoin technology represents technical solution of such principal, and historically represents that technological jump in the means of production, that will bring the society to the next level of socio-economic development – the era of “Crypto-Socialism”. |
| Keywords: | Bitcoin, Blockchain, peer-to-peer relations, Crypto-Socialism, Socio-Economic Relations, contractual relations, decentralization, decentralized platform, Биткоин, Блокчейн, Одноранговые Отношения, Крипто-Социализм, децентрализация, социально-економические отношения, платформа, Пирамида Маслова (Маслоу), контрактно-денежные отношения, ячеистая топология общества, |
| JEL: | A1 A3 B0 E0 E4 E5 E6 G0 G2 P0 |
| Date: | 2016–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73572&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that the recovery in euro area has strengthened recently. Lower oil prices, a broadly neutral fiscal stance, and accommodative monetary policy are supporting domestic demand. However, inflation and inflation expectations remain very low, below the European Central Bank’s medium-term price stability objective. Euro area GDP growth is expected to decelerate from 1.6 percent in 2016 to 1.4 percent in 2017, mainly owing to the negative impact of the U.K. referendum outcome. Growth five years ahead is expected to be about 1.5 percent, with headline inflation reaching only 1.7 percent. |
| Keywords: | Economic recovery;Economic growth;Fiscal policy;Fiscal reforms;Banking systems;Negative interest rates;Interest rate policy;Monetary policy;Statistics;Data quality assessment framework;Economic indicators;Staff Reports;Press releases;Euro Area; |
| Date: | 2016–07–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/219&r=mac |
| By: | Esther Perez Ruiz |
| Abstract: | This paper examines inflation dynamics in Chile during the last peso depreciation episode 2013-15. The evidence is for substantial pass-through effects to inflation, given the large and persistent depreciation movement. Widespread indexation practices in non-traded goods markets are found to amplify the inflation response to the depreciation, while the role of wage indexation is less relevant to the inflation dynamics. Overall, inflation would have remained within the central bank’s target band absent the peso depreciation. The analysis also shows that tightening monetary policy in response to a depreciation shock can be costly in terms of output: the response of activity to rates is found to be strong, while the transmission from activity to inflation is found to be weak. Simulations under uncertainty about the extent of the pass-through also suggest that monetary policy can play a countercyclical role in the face of depreciation shocks at a moderate inflationary cost, as long as inflation expectations remain anchored. |
| Keywords: | Inflation;Chile;Exchange rate depreciation;Goods;Monetary policy;Floating exchange rates;Exchange rate regimes;Small open economies;Econometric models;Time series;traded goods inflation, non-traded goods inflation, exchange rate pass-through, indexation, monetary policy, Chile |
| Date: | 2016–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/129&r=mac |
| By: | Benjamin Beckers; Kerstin Bernoth |
| Abstract: | This paper investigates whether central banks can attenuate excessive mispricing in stocks as suggested by the proponents of a \leaning against the wind" (LATW) monetary policy. For this, we decompose stock prices into a fundamental component, a risk premium, and a mispricing component. We argue that mispricing can arise for two reasons: (i) from false subjective expectations of investors about future fundamentals and equity premia; and (ii) from the inherent indeterminacy in asset pricing in line with rational bubbles. We show that the response of the excessive stock price component to a monetary policy shock is ambiguous in both the short- and long-run, and depends on the nature of the mispricing. Subsequently, we evaluate the scope for a LATW policy empirically by employing a time-varying coefficient VAR with a flexible identification scheme based on impact and long-run restrictions using data for the S&P500 index from 1962Q1 to 2014Q4. We _nd that a contractionary monetary policy shock in fact lowers stock prices beyond what is implied by the response of their underlying fundamentals. |
| Keywords: | Asset pricing, bubbles, financial stability, leaning against the wind, mispricing, monetary policy, time-varying coefficient VAR, zero and sign restrictions |
| JEL: | E44 E58 E52 G12 G14 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1605&r=mac |
| By: | Olivier Cardi; Peter Claeys; Romain Restout |
| Abstract: | This paper develops a two-sector open economy model with imperfect mobility of labor across sectors in order to account for time-series evidence on the aggregate and sectoral effects of a government spending shock. Using a panel of sixteen OECD coun- tries over the period 1970-2007, our VAR evidence shows that a rise in government consumption i) increases hours worked and GDP and produces a simultaneous decline in investment and the current account, ii) increases non traded output relative to GDP and thus its output share (in real terms) and lowers the output share of tradables, and iii) causes both the relative price and the relative wage of non tradables to appreciate. While the second set of findings reveals that the government spending shock is biased toward non tradables and triggers a shift of resources for this sector, the third find- ing indicates the presence of labor mobility costs, thus preventing wage equalization across sectors. Turning to cross-country differences, empirically we detect a positive relationship between the magnitude of impact responses of sectoral output shares and the degree of labor mobility across sectors. Our quantitative analysis shows that our empirical findings for aggregate and sectoral variables can be rationalized as long as we allow for a difficulty in reallocating labor across sectors along with adjustment costs to capital accumulation. Finally, the model is able to generate a cross-country relationship between the degree of labor mobility and the responses of sectoral output shares which is similar to that in the data. |
| Keywords: | Fiscal policy; Labor mobility; Investment; Relative price of non tradables; Sectoral wages. |
| JEL: | E22 E62 F11 F41 J31 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2016-39&r=mac |
| By: | Monika Hadas-Dyduch (University of Economics in Katowice, Poland); Michal Bernard Pietrzak (Nicolaus Copernicus University, Poland); Adam P. Balcerzak (Nicolaus Copernicus University, Poland) |
| Abstract: | Visegrad countries, Poland, Slovakia, Czech Republic and Hungary have common history and have faced the same challenges created by globalisation process for the last three decades. They have successfully transformed form central planned to market economies. They have implemented fundamental reforms of their whole institutional systems and finally joined the European Union in the year 2004. During this process the most significant changes, which were directly influenced by opening of these economies in the reality of globalisation, have been seen on the labour markets. From the policy point of view the labour markets are always considered as crucial for social and macroeconomic stability of economies. This forces the economists to constant empirical research in this field. In this context the aim of the article is to conduct comparative analysis of the unemployment phenomena in the four countries. For this purpose wavelet analysis was applied. In the research a discrete wavelet transformation was used, which has been recently effectively used for analysis of macroeconomic indicators. The empirical research was conducted for the years 1998-2016 and it was based on the Eurostat data. In the research the following hypothesis was verified: the phenomenon of unemployment in the case of Poland, Slovakia and Hungary is formed in a quite similar way, whereas in Czech Republic the situation on the labour markets is mainly determined by factors of different nature. |
| Keywords: | unemployment, wavelet analysis, multiresolution analysis, Visegrad countries |
| JEL: | E2 E24 C45 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2016:no37&r=mac |
| By: | Cesa-Bianchi, Ambrogio (Bank of England); Imbs, Jean (Paris School of Economics); Saleheen, Jumana (Bank of England) |
| Abstract: | In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (eg, where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But finance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks. |
| Keywords: | Financial linkages; business cycles synchronization; contagion; common shocks; idiosyncratic shocks |
| JEL: | E32 F15 F36 G21 G28 |
| Date: | 2016–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0612&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This paper provides a review of the economic performance of Malawi under the program supported by an Extended Credit Facility (ECF) arrangement. Malawi’s economy has been hit hard by weather-related shocks for a second consecutive year, further weakening growth and worsening food insecurity. Growth is estimated to have declined from 5.7 percent in 2014 to 3 percent in 2015 and is projected to drop further to 2.7 percent this year. Under the ECF program, the macroeconomic framework in the near term will be anchored on a policy mix incorporating a tight monetary stance and a level of domestic fiscal financing consistent with disinflation. |
| Keywords: | Extended Credit Facility;Fiscal policy;Fiscal reforms;Banking sector;Monetary policy;Bank supervision;Economic indicators;Balance of payments statistics;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Phasing of purchases;Performance criteria waivers;Malawi; |
| Date: | 2016–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/182&r=mac |
| By: | Kamiar Mohaddes; Mehdi Raissi |
| Abstract: | This paper investigates the global macroeconomic consequences of falling oil prices due to the oil revolution in the United States, using a Global VAR model estimated for 38 countries/regions over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved through imposing dynamic sign restrictions on the impulse responses of the model. The results show that there are considerable heterogeneities in the responses of different countries to a U.S. supply-driven oil price shock, with real GDP increasing in both advanced and emerging market oil-importing economies, output declining in commodity exporters, inflation falling in most countries, and equity prices rising worldwide. Overall, our results suggest that following the U.S. oil revolution, with oil prices falling by 51 percent in the first year, global growth increases by 0.16 to 0.37 percentage points. This is mainly due to an increase in spending by oil importing countries, which exceeds the decline in expenditure by oil exporters. |
| Keywords: | Tight oil, shale oil, fracking revolution, oil price decline, oil supply, global macroeconometric modeling, and international business cycle |
| JEL: | C32 E17 F44 F47 O13 Q43 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-55&r=mac |
| By: | Nagore Garcia, A.; van Soest, Arthur (Tilburg University, Center For Economic Research) |
| Abstract: | Using administrative data from the Spanish Social Security Administration, we analyse the nature and stability of job matches starting during the economic boom in 2005 and during the recession in 2009. We compare the individual, job and firm characteristics in the two samples and estimate a competing risk model distinguishing job-to-job, job-to-unemployment, and other transitions. We find that job-to-job transitions are pro-cyclical, while unemployment transitions are counter-cyclical. Individuals most affected by the economic crisis tend to be young males, living in regions with high unemployment rates, with low qualifications and working in manual occupations (particularly construction), and (especially Spanish speaking) immigrants. The positive relation between job stability and firm size is stronger during the recession than during the boom. |
| Keywords: | job tenure; business cycle; job-separations |
| JEL: | J64 C41 E32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:3514fea2-6b69-40e2-bdcc-1ba81a96f0ca&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | This 2016 Article IV Consultation highlights that Vietnam’s economy has experienced solid growth with low inflation, reflecting policy attention to maintaining macroeconomic stability. Economic performance was robust through most of 2015, driven by rapid export growth, foreign direct investment, and strong domestic demand. Manufacturing and exports moderated near year-end, reflecting slowing external demand. Inflation declined below 1 percent in 2015 before ticking upward in early 2016 owing to higher food and administered prices. For 2016, growth is projected to moderate to about 6 percent, reflecting the adverse agriculture shock, lower external demand, and spillovers of tighter global financial conditions. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Fiscal consolidation;Fiscal reforms;Public enterprises;Monetary policy;Bank restructuring;Macroprudential Policy;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Vietnam; |
| Date: | 2016–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/240&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | This paper discusses recent economic developments, economic outlook, and risks in Timor-Leste. Growth has moderated while inflation has fallen sharply. Owing to a sharp fall in oil revenues and large development needs, Timor-Leste is facing difficult policy challenges. According to industry estimates, unless new oil reserves are developed, oil production is expected to decline further and cease by 2023. Prioritization of government expenditures to facilitate high-return infrastructure investments is key in tandem with structural reforms that catalyze nonoil private sector growth. The 2016 budget outlined a significant scaling up of the public investment in 2017–19, which will strain fiscal sustainability. |
| Keywords: | Article IV consultation reports;Fiscal policy;Fiscal consolidation;Fiscal reforms;Private sector;Economic growth;Government finance statistics;Technical Assistance;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Timor-Leste; |
| Date: | 2016–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/183&r=mac |
| By: | Hikaru Saijo (University of California Santa Cruz); Cosmin Ilut (Duke University) |
| Abstract: | We construct and estimate a heterogeneous-firm business cycle model where firms face Knightian uncertainty about their profitability and learn it through production. The cross-sectional mean of firm-level uncertainty is high in recessions because firms invest and hire less. The higher uncertainty reduces agents' confidence and further discourages economic activity. This feedback mechanism endogenously generates properties traditionally explained through additional shocks or rigidities: countercyclical labor and financial wedges, co-movement driven by demand shocks, and amplified and hump-shaped dynamics. We find that endogenous idiosyncratic confidence reduces the empirical role of standard rigidities and changes inference about sources of fluctuations and policy experiments. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:664&r=mac |
| By: | Hommes, C.H. (University of Amsterdam); Lustenhouwer, J. (University of Amsterdam) |
| Abstract: | We derive policy implications for an inflation targeting central bank, who’s credibility is endogenous and depends on its past ability to achieve its targets. We do this in a New Keynesian framework with heterogeneous agents and boundedly rational expectations. Our assumptions about expectation formations are more in line with expectations observed in survey data and laboratory experiments than the fairly restrictive rational expectations hypothesis. We find that the region of allowed policy parameters is strictly larger under heterogeneous expectations than under rational expectations. Furthermore, with theoretically optimal monetary policy, global stability of the fundamental steady state can be achieved, implying that the system always converges to the targets of the central bank. This result however no longer holds when the zero lower bound (ZLB) on the nominal interest rate is accounted for. Self-fulfilling deflationary spirals can then occur, even under optimal policy. The occurrence of these liquidity traps crucially depends on the credibility of the central bank. Deflationary spirals can be prevented with a high inflation target, aggressive monetary easing, or a more aggressive response to inflation. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ams:ndfwpp:15-03&r=mac |
| By: | Hubert Bukowski |
| Abstract: | Fiscal policy may affect the size of the fiscal multiplier or lengthen the elevated multipliers period. This notion at first seems controversial, however it is only an outcome of combining two strands of already available literature together. The first strand touches the effects of fiscal policy on economic situation, the second one suggests economic situation affects fiscal multiplier. Having those two premises implies that fiscal policy could indirectly influence the fiscal multiplier size or the length of the elevated multiplier period. This possibility is fitted into a simple model of liquidity trap with hysteresis effects. One of the main outcomes of the model is that, when the government expectations on the size of the fiscal multiplier influence fiscal actions - as it is possibly the case - those expectations may become selffulfilling prophecies. |
| Keywords: | fiscal multiplier, self-fulfilling prophecy, fiscal consolidation timing |
| JEL: | E62 H5 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:217&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that economic recovery in France is solidifying. The economy is projected to expand by 1.5 percent in 2016, primarily driven by strong consumer spending. There are also signs of a cyclical recovery in investment, and the slump in residential construction appears to be bottoming out. By contrast, net exports are declining as demand from trading partners has slowed. Private sector job creation has remained lackluster, and the unemployment rate has hovered at about 10 percent. The government has continued to advance important reforms to help create the conditions for improved economic performance. As for budget policies, there are ongoing efforts to contain spending growth at all levels of government while easing taxes. |
| Keywords: | Article IV consultation reports;Economic recovery;Economic growth;Unemployment;Fiscal risk;Fiscal policy;Fiscal consolidation;Fiscal reforms;Financial sector;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;France; |
| Date: | 2016–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/227&r=mac |
| By: | Michal Brzoza-Brzezina |
| Abstract: | This paper compares the consequences of hitting the zero lower bound in small open and large closed economies. I costruct a two-economy New Kenynesian model and calibrate it so that one economy is small and open and the second large and closed. Then I conduct a number of experiments assuming that the zero lower bound binds for one or the other economy. At the ZLB bad shocks are amplified and good shocks dampened. I show that these modifications are much stronger in the large than in the small economy. As a result the large economy may suffer more at the ZLB. |
| Keywords: | zero lower bound, small open economy, amplification of shocks |
| JEL: | E43 E52 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:sgh:kaewps:2016012&r=mac |
| By: | Andrea Fracasso; Rocco Probo |
| Abstract: | Long-term inflation expectations in the euro area remained well anchored during the global financial crisis and were therefore insensitive to the arrival of economic news. This article investigates the behaviour of expectations in the euro area during the most recent period and finds evidence that the de-anchoring of expectations started in December 2011 and never reversed. This is in line with the more aggressive stance held by the ECB in the following months as well as with the pattern of ECB Professional ForecastersÕ expectations. |
| Keywords: | Inflation expectations, ECB, Euro area, De-anchoring |
| JEL: | E31 E52 E58 C22 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwprg:2016/05&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | This paper mainly discusses the IMF-supported program aimed at restoring macroeconomic stability and confidence in Suriname’s economy. The proposed 24-month Stand-By Arrangement (265 percent of quota, or SDR 342 million) aims to support Suriname’s adjustment to the fall in commodity export prices and restore external and fiscal sustainability. It foresees an improvement of the fiscal balance by 7.4 percent of GDP, which would reverse the rise in the government debt-to-GDP ratio; restore foreign reserves to adequate levels—four months of imports; and reflect a monetary policy stance calibrated to reduce inflation to single digits. It also strengthens the foundations for private-sector growth. |
| Keywords: | Stand-by arrangement requests;Fiscal consolidation;Fiscal sustainability;Fiscal reforms;Monetary policy;Reserves accumulation;Foreign exchange auctions;Economic indicators;Balance of payments statistics;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Suriname;reserves, central bank, monetary fund, debt, revenue |
| Date: | 2016–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/141&r=mac |
| By: | Wilko Bolt; Maarten van Oordt |
| Abstract: | This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important: first, the current use of virtual currency to make payments; second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply); and third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. The model predicts that, as virtual currency becomes more established, the exchange rate will become less sensitive to the impact of shocks to speculators’ beliefs. This undermines the notion that excessive exchange rate volatility will prohibit widespread use of virtual currency. |
| Keywords: | Asset Pricing, E-Money, Exchange rates |
| JEL: | E42 E51 F31 G1 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:16-42&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | The Central African Republic (C.A.R.) is at a turning point, with the return to democratic institutions since April 1, 2016 offering prospects of ending the cycle of violent conflicts and political instability that has beleaguered the country since end-2012 and also engineering a turnaround to rebuild its economy, reduce poverty, and exit progressively from fragility. Three disbursements under the Rapid Credit Facility (RCF) helped to address urgent balance of payments needs and restore macroeconomic stability during the protracted political transition that lasted from January 2014 to March 2016. The newly elected government is focusing on reforms for a progressive exit from fragility, including improving security, consolidating the peace and the reconciliation process, rebuilding government institutions, and strengthening economic management. |
| Keywords: | Article IV consultation reports;External shocks;Economic growth;Current account deficits;Fiscal policy;Government expenditures;Financial management;Fiscal reforms;Banking sector;Economic indicators;Extended Credit Facility;Letters of Intent;Staff Reports;Press releases;Central African Republic; |
| Date: | 2016–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/269&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | This paper discusses recent economic developments, outlook, and policies required to stabilize the economy of Sri Lanka. Recent economic developments reflect a more challenging external environment as well as a sharpening of macro-financial imbalances that began emerging late in 2014. Fiscal consolidation has stalled, and public debt is set to rise in 2015. Monetary policy has been on hold since the last rate cut in April 2015, and there appears little room for additional easing. Quick action is needed to reestablish credible policies and restore confidence. Strong fiscal and monetary policies need to be implemented for sustainable economic growth in Sri Lanka. |
| Keywords: | Post-program monitoring;Economic conditions;Fiscal policy;Tax revenues;Financial sector;Banks;Monetary policy;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Sri Lanka;monetary fund, economic developments, central bank, debt, monetary policy |
| Date: | 2016–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/152&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper mainly examines fiscal decentralization, credit-loss recovery, and unemployment in Croatia. The degree of expenditure and revenue decentralization in Croatia appears limited relative to its peers. At about 16 percent of general government spending, subnational government spending in Croatia is modest compared to other southeastern European countries and to the EU-28 average, and particularly low compared to the most decentralized countries in the EU. Croatia’s recovery since late 2014 has been moderate. Croatia’s recession lasted six years and was thus the longest among the new EU member states. Croatia’s structural and cyclical unemployment rates are very high, at about 11.5 percent and 5 percent respectively in 2015. |
| Keywords: | Article IV consultation reports;Fiscal policy;Government expenditures;Fiscal reforms;Tax reforms;Banking sector;Monetary policy;Exchange rate assessments;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Croatia; |
| Date: | 2016–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/188&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that the Ebola epidemic and the fall in commodity prices have revealed the vulnerabilities of Liberia’s economy. After barely positive growth in 2014, GDP was flat in 2015 mainly owing to the decline in activity in the iron ore and rubber sectors. Although international gross reserves increased in 2015, the Central Bank of Liberia’s net foreign exchange position declined owing to operational deficits and exceptional support to the banking sector. In 2016, growth is expected to rise to 2.5 percent, thanks to a rebound in services and the start of gold production, while inflation should stay in the single digits. |
| Keywords: | Article IV consultation reports;External shocks;Economic growth;Fiscal policy;Debt management;Fiscal reforms;Financial management;Banking sector;Monetary policy;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Liberia; |
| Date: | 2016–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/238&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that the Russian economy contracted by 3.7 percent in 2015 owing to falling oil prices and the quasi closure of international financial markets to Russian entities. The economic contraction is nonetheless shallower than previous recessions as a stronger external position and the authorities’ economic package cushioned the shocks, helped restore confidence and stabilized the financial system. Lower oil prices and needed fiscal adjustment will keep the economy in recession in 2016 with an expected decline in real GDP of 1.2 percent. Growth is expected to resume in 2017 and reach 1 percent, as domestic demand slowly recovers on the back of easing financial conditions and pent up demand. |
| Keywords: | Article IV consultation reports;Economic recession;External shocks;Oil prices;Sanctions;Fiscal policy;Fiscal consolidation;Fiscal reforms;Monetary policy;Banking sector;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Russian Federation; |
| Date: | 2016–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/229&r=mac |
| By: | Florian Gerth; Keisuke Otsu |
| Abstract: | This paper analyses the Post-crisis slump in 29 European economies during the 2008Q1 - 2014Q4 period using the Business Cycle Accounting (BCA) method a la Chari, Kehoe and McGrattan (2007). We find that the deterioration in the efficiency wedge is the most important driver of the European Great Recession and that this adverse shock persists throughout our sample. Moreover, we find that the growth rate of non-performing loans are negatively associated with the decline in efficiency wedges. These findings support the emerging literature on resource misallocation triggered by financial crises. |
| Keywords: | Great Recession in Europe; Business Cycle Accounting |
| JEL: | E13 E32 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1606&r=mac |
| By: | Andreas Jobst; Huidan Lin |
| Abstract: | More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate. |
| Keywords: | Negative interest rates;Euro Area;Interest rate policy;Banks;Profits;Monetary transmission mechanism;Unconventional monetary policy instruments;European Central Bank;negative rates, NIRP, unconventional monetary policy, monetary transmission |
| Date: | 2016–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/172&r=mac |
| By: | International Monetary Fund. Middle East and Central Asia Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that non-oil economic activity in the United Arab Emirates slowed to 3.7 percent in 2015. Negative effects on overall growth were partially offset by the increase in oil production. Despite the strong fiscal policy response to adjust to lower oil prices, the fiscal balance turned to a deficit of 2.1 percent of GDP, while the current account surplus declined to 3.3 percent of GDP. Banks remained well capitalized and liquid, though pressures on profitability are emerging as asset quality weakens owing to the economic slowdown and rising funding costs. Economic activity is expected to moderate further in 2016, before improving over the medium term. |
| Keywords: | Article IV consultation reports;Economic growth;Oil prices;Fiscal policy;Fiscal consolidation;Government expenditures;Fiscal reforms;Banking sector;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;United Arab Emirates; |
| Date: | 2016–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/251&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | CEMAC is buffeted by the oil-price shock. The outlook has deteriorated, as members continue to suffer from the shock. Regional and national authorities have yet to take appropriate measures to address the economic downturn, whilst continuing to face substantial capacity constraints. Although the banking sector has weathered the downturn so far, government payment delays could undermine its soundness. Risks are significant: a weaker-than-expected oil price recovery or deteriorating security conditions could jeopardize macroeconomic stability. |
| Keywords: | Economic growth;Oil prices;Fiscal risk;Fiscal consolidation;Banking sector;Bank supervision;Monetary policy;Financial stability;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Central African Economic and Monetary Community; |
| Date: | 2016–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/277&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | Abenomics needs a significant policy upgrade to regain traction. Abenomics initially made good progress in revitalizing the economy, but the targets for growth, inflation, and the primary balance remain out of reach under current policies. Recognizing the risk of falling short, the authorities introduced a negative interest rate policy, delayed the planned consumption tax hike, and adopted additional structural reforms, but the outlook remains weak. Abenomics can still achieve its ambitious targets through a comprehensive and coordinated policy upgrade. In the absence of such a reload, policies and targets will need to be reset for more gradual and realistic progress to avoid adding to volatility and uncertainty. |
| Keywords: | Article IV consultation reports;Economic conditions;Economic growth;Inflation;Fiscal policy;Fiscal consolidation;Fiscal reforms;Monetary policy;Financial stability;Economic indicators;Debt sustainability analysis;External Sector Report;Staff Reports;Press releases;Japan; |
| Date: | 2016–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/267&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper discusses key issues related to the economy of the United Kingdom. The U.K. economy has performed well in recent years, but it faces important challenges and risks. In the near term, the largest risks and uncertainties relate to the upcoming European Union (EU) referendum. In the event the United Kingdom stays in the EU, steady growth is expected to continue over the next few years. Macroeconomic policies in the baseline should focus on promoting continued steady growth while reducing vulnerabilities. In particular, monetary policy should remain on hold until inflationary pressures are clearer and to help offset headwinds from fiscal consolidation. |
| Keywords: | Article IV consultation reports;Economic growth;Financial sector;Monetary policy;Bank supervision;Fiscal policy;Fiscal consolidation;Fiscal reforms;Housing;Macroprudential Policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;United Kingdom;referendum, monetary fund, deficit, markets, monetary policy |
| Date: | 2016–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/168&r=mac |
| By: | Arturo Leonardo Vásquez Cordano (Chief Economist and Manager of the Bureau of Regulatory Policy and Economic Analysis at Osinergmin, Vice-President of the Commission of Free Competition at the Peruvian Antitrust and Consumer Protection Authority (Indecopi), as well as Professor at GERENS Graduate School of Business in Lima, Peru.); Abdel M. Zellou (currently co-founder and partner at Clear Future Consulting, U.S.A. Was Market Development Director of Gathering and Midstream Gas at T.D. Williamson, U.S.A.) |
| Abstract: | There was an upward trend in energy commodity prices since 2000, but with the surge in supply coming from unconventional oil and gas resources in North and South America, the trend in natural gas prices has become downward in recent years. However, the exploitation of these resources is generating public concerns due to the possible adverse environmental impacts of using hydraulic fracturing and other techniques on underground water. The purpose of this paper is to address the following questions: are there super cycles in natural gas prices? What are the environmental consequences in Latin America of the exploitation of unconventional gas given the cyclical behavior of gas prices and how can governments implement environmental policies to regulate unconventional gas extraction? Three super cycles in natural gas prices are identified with the last peak occurring in 2006. Our analysis indicates that the instable political situation and institutional weakness, the governmental intervention through asset nationalization and state-owned oil companies, the lack of transparent investment rules, high capital expenditures to develop LNG export projects and the exploration of shale resources, as well as the pre-salt discoveries in Brazil make uncertain that the shale gas boom achieve a large impact in Latin American during the current gas price super cycle. |
| JEL: | E32 L71 Q41 E37 L51 Q48 Q58 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:ose:wpaper:35&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that the rebound of the Irish economy has been exceptional. High frequency indicators suggest that growth momentum has continued in 2016. Solid job creation has reduced the unemployment rate below 8 percent. Inflation has hovered around zero as low commodity and food prices more than offset rising cost of services, particularly housing rents. Taking into account negative spillovers, real GDP growth is projected to decline to just below 5 percent in 2016 and converge to its estimated potential over the medium-term on the back of more moderate export growth and investment activity. |
| Keywords: | Article IV consultation reports;Economic recovery;Economic growth;Fiscal policy;Corporate sector;Private sector;Real estate prices;Banking sector;Macroprudential Policy;Economic indicators;Debt sustainability analysis;Post-program monitoring;Staff Reports;Press releases;Ireland; |
| Date: | 2016–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/256&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This paper review Uganda’s economic performance under the program supported by the Policy Support Instrument. Despite sluggish growth in credit to the private sector, GDP growth has been supported by the implementation of large public investments. Inflation has started to decelerate toward the medium-term target, allowing for monetary policy easing. Adverse weather developments, regional and global-political and economic uncertainties, and post-election fiscal pressures may challenge the achievement of short-term growth and inflation objectives. However, provided progress on structural reforms is accelerated, the medium-term outlook remains positive, supported by future oil production, increased regional integration and inter-regional trade, and implementation of significant infrastructure projects. |
| Keywords: | Policy Support Instrument;Economic growth;Fiscal policy;Budgets;Fiscal consolidation;Fiscal reforms;Domestic payments arrears;Monetary policy;Inflation targeting;Economic indicators;Letters of Intent;Extended arrangement requests;Staff Reports;Press releases;Uganda;inflation, exchange, exchange rate, monetary fund, instrument |
| Date: | 2016–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/145&r=mac |
| By: | Been-Lon Chen (Institute of Economics, Academia Sinica); Yunfang Hu (Graduate School of Economics, Kobe University); Kazuo Mino (Faculty of Economics, Doshisha University) |
| Abstract: | This paper studies stabilization effects of nonlinear income taxation in small open economies with endogenous growth. We show that in the standard setting where domes- tic households freely lend to or borrow from foreign households under an exogenously given world interest rate, progressive taxation gives rise to equilibrium indeterminacy, while regressive taxation establishes equilibrium determinacy. These policy effects do not necessarily hold, either if the time discount rate is endogenously determined or if the world interest rate is elastic. |
| Keywords: | Taxation Rules, Equilibrium Indeterminacy, Small-Open Economies, En-dogenous Growth |
| JEL: | E62 O41 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:946&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | Macroeconomic conditions have improved recently. Growth appears to be picking up while inflation has declined to low single digits; foreign reserves have been increasing on the back of a strong financial account; the fiscal balance has recorded a surplus in the past two years; and credit growth remains moderate. Financial soundness indicators point to a modest improvement in the health of the financial sector. |
| Keywords: | Article IV consultation reports;Fiscal policy;Government expenditures;Tax revenues;Monetary policy;Currency pegs;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Bhutan; |
| Date: | 2016–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/206&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper discusses the economic performance of Germany. The economy of Germany is projected to slowly rebalance, with domestic demand supported by tight labor market, accommodative monetary conditions, and, in 2016, a fiscal expansion. Declining medium-term growth prospects, however, continue to hold back domestic investment and push up savings, preventing faster rebalancing. Progress has been slow on addressing needs in public infrastructure and stimulating competition in services sector, while mounting aging costs and a successful labor market integration of women and refugees require further policy action. Full use of the room available under fiscal rules to finance additional public investment and growth-friendly structural reforms would be appropriate. |
| Keywords: | Article IV consultation reports;Fiscal policy;Public investment;Labor supply;Immigration;Services sector;Housing prices;Banking sector;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Germany; |
| Date: | 2016–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/202&r=mac |
| By: | International Monetary Fund. Middle East and Central Asia Dept. |
| Abstract: | This paper discusses Afghanistan’s Request for a Three-Year Arrangement Under the Extended Credit Facility (ECF). The program sets out a structural reform agenda that focuses on institution building, fiscal and financial reforms, and measures to combat corruption to lay the foundations for scaled up private sector development. The envisaged reforms dovetail with Afghanistan’s National Development Framework currently being finalized. The program aims to preserve macro-financial stability by implementing prudent fiscal, monetary, and financial policies, and by maintaining external buffers and a flexible exchange rate regime. The IMF staff supports the authorities’ request for an ECF arrangement under an IMF-supported program. |
| Keywords: | Extended Credit Facility;Economic conditions;Economic growth;Corruption;Tax administration;Customs administration;Fiscal reforms;Monetary policy;Economic indicators;Letters of Intent;Staff Reports;Press releases;Extended arrangement requests;Afghanistan, Islamic Republic of; |
| Date: | 2016–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/252&r=mac |
| By: | International Monetary Fund. Middle East and Central Asia Dept. |
| Abstract: | This paper presents an overview of the macroeconomic condition of Tunisia. Tunisia has managed to preserve macroeconomic stability and initiate fiscal and banking reforms in a context marked by a prolonged political transition, spillovers from the crisis in Libya, and numerous exogenous shocks, including terror attacks. However, important vulnerabilities remain: economic activity is weak, employment is low, social tensions linger, spending composition has deteriorated, and external imbalances are high. To tackle these issues, Tunisia formulated a five-year (2016–20) economic vision in 2015, which is being developed into a detailed plan. The vision aims at promoting stronger and more inclusive growth in Tunisia. |
| Keywords: | Extended Fund Facility;Fiscal reforms;Civil service;Energy sector;Public enterprises;Governance;Monetary policy;Banking sector;Economic indicators;Letters of Intent;Debt sustainability analysis;Extended arrangement requests;Staff Reports;Press releases;Tunisia;security, macroeconomic stability, monetary fund, banking sector, inflation |
| Date: | 2016–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/138&r=mac |
| By: | Bernd Hayo (University of Marburg); Matthias Neuenkirch (University of Trier) |
| Abstract: | In this paper, we examine the relationship between market participants’ perception of central bank predictability and their assessment of central bank communication skills and success in conveying objectives as well as the importance of transparency-enhancing measures, such as voting records, transcripts or minutes of policy meetings, and conditional interest rate projections. Our analysis is based on a unique dataset of almost 500 market participants worldwide who were asked questions with respect to the performance of the Bank of England, the Bank of Japan, the European Central Bank, and the Federal Reserve. Our results indicate a positive and economically notable relationship between central banks’ ability to convey their objectives and their overall communication skills on the one hand, and market participants’ perception of the banks’ predictability on the other hand, for all four central banks. The dissemination of more specific information does not appear to contribute to better central bank predictability. This raises doubts about the widely-held notion that implementing ever more transparency-enhancing measures will improve central bank predictability. |
| Keywords: | Central Bank, Communication, Financial Market Participants, Objectives, Predictability, Survey, Transparency |
| JEL: | E52 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201619&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | This paper discusses economic performance, outlook, and risks of Sri Lankan economy. Macroeconomic performance in 2015 reflected a mix between positive underlying growth momentum, the negative impact of unbalanced domestic policies, and an increasingly difficult external environment. The government fiscal deficit expanded to 6.9 percent of GDP in 2015. The overall balance of payments deteriorated significantly in 2015 despite an improvement in the terms of trade. Sri Lanka’s short-term outlook is challenging, but medium-term prospects are favorable if current macro-financial imbalances can be addressed. The key risks to the outlook stem from (1) government inaction on key policies and (2) a significant deterioration in the external environment. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Revenue mobilization;Fiscal consolidation;Fiscal reforms;Public enterprises;Monetary policy;Economic indicators;Extended Fund Facility;Extended arrangement requests;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Sri Lanka;tax, exchange, monetary fund, debt, inflation |
| Date: | 2016–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/150&r=mac |
| By: | Fujisaki, Seiya |
| Abstract: | We analyze the effect of consumption tax on the economy with heterogeneous agents, that is, with a dynamic capitalist and a myopic worker. We suppose that the revenue which is raised for government expenditure and is included in the worker’s utility is only from consumption tax and that the constant tax rate for each agent may be different. We theoretically find that it is beneficial for all agents if the capitalist as the dynamic agent becomes more patient and increases his ”spirit of capitalism”, whereas controlling tax rates faces a trade-off between the economic scale and the difference of agent, although heterogeneous taxes may have different effects to some extent. |
| Keywords: | government expenditure in utility, consumption tax, heterogeneous agents, dynamic and myopic |
| JEL: | E62 H20 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73500&r=mac |
| By: | International Monetary Fund. Middle East and Central Asia Dept. |
| Abstract: | This paper discusses key issues related to the economy of Somalia. Since 2012, Somalia has been recovering slowly from nearly 25 years of civil war. Weak institutional capacity, complex clan politics, and a challenging security situation have complicated economic reconstruction. As a result, social and economic conditions remain dire. To help Somalia’s economic reconstruction efforts and establish a policy implementation track record as an important step toward an eventual fund arrangement, the authorities have requested an IMF staff-monitored program. It focuses on strengthening macroeconomic policy management and reforms to strengthen economic governance and institutional capacity and keep up the pace of restoring key economic and financial institutions. |
| Keywords: | Staff-monitored programs;Fiscal policy;Revenue mobilization;Tax administration;Customs administration;Public debt;Fiscal reforms;Financial management;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Somalia;monetary fund, budget, security, currency, revenue |
| Date: | 2016–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/136&r=mac |
| By: | Gabriele Camera (Chapman University and University of Basel); Cary Deck (University of Arkansas and Chapman University); David Porter (Chapman University) |
| Abstract: | Does inequality affect a group’s cohesion and ability to prosper? Participants in laboratory economies played an indefinite sequence of helping games in random, anonymous pairs. A coin flip determined donor and recipient roles in each pair. This random shock ensured equality of opportunity but not of results, because earnings depended on realized shocks. We manipulated the ability to condition choices on this uncontrollable inequality source. In all treatments, uncertain ending supports multiple Pareto-ranked equilibria, including full cooperation. Theoretically, inequalities do not alter the incentives’ structure. Empirically, inequality disclosures altered conduct, weakened norms of mutual support and reduced efficiency. |
| Keywords: | experiments, indefinitely repeated games, social norms, social dilemmas |
| JEL: | C70 C90 D03 E02 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:16-18&r=mac |
| By: | Karl Whelan |
| Abstract: | This paper focuses on how the lender of last resort function works in the euro area. It argues that the Eurosystem does not provide a clear and transparent lender of last resort facility and discusses how this has promoted financial instability and has critically undermined free movement of capital in the euro area. Until this weakness in the euro area’s policy infrastructure is fixed, it will be difficult to have a truly successful banking union. |
| Keywords: | European Central Bank; Lender of last resort; Banking union |
| JEL: | E58 G21 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201609&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper presents an overview of recent economic developments, outlook, and risks of the Albanian economy. Over the past few years, Albania has successfully maintained macroeconomic stability amid a turbulent external environment. A sizable fiscal consolidation is underway, and public debt is projected to start decreasing in 2016. However, growth remains sluggish due to a weak euro area recovery and risk-averse banks. The policy mix focuses on fiscal adjustment, while supporting growth through gradual monetary easing. The key policy priorities are to lower fiscal vulnerabilities through continued consolidation, revive private sector credit by cleaning up bank balance sheets, and continue implementing growth-friendly structural reforms. |
| Keywords: | Article IV consultation reports;Fiscal consolidation;Tax policy;Fiscal reforms;Electric power;Monetary policy;Bank supervision;Economic indicators;Balance of payments statistics;Letters of Intent;Debt sustainability analysis;Staff Reports;Extended arrangement reviews;Press releases;Albania;good, debt, public debt, financial stability, monetary fund |
| Date: | 2016–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/142&r=mac |
| By: | Mariusz Kapuściński |
| Abstract: | The aim of this study is to investigate the effects of monetary policy on financial asset prices in Poland. Following Gürkaynak et al. (2005) I test how many factors adequately explain the variability of short-term interest rates around MPC meetings, finding that there are two such factors. The first one has a structural interpretation as a “current interest rate change” factor and the second one as a “future interest rate changes” factor, with the latter related to MPC communication. Regression analysis shows that, controlling for foreign interest rates and global risk aversion, both MPC actions and communication matter for government bond yields, and that communication is more important for stock prices. Furthermore, the foreign exchange rate used to depreciate (appreciate) after MPC statements signalling tighter (easier) future monetary policy. However, the effect disappeared at the end of the sample. For most of the sample the exchange rate would appreciate (depreciate) or would not change in a statistically significant manner after an increase (a decrease) of the current interest rate. The results indicate that not only changes of the current interest rate but also MPC communication matters for financial asset prices in Poland. It has important implications for the conduct of monetary policy, especially in a low inflation and low interest rate environment. |
| Keywords: | monetary policy, financial asset prices, Poland. |
| JEL: | E51 G12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:216&r=mac |
| By: | Ivana Rajkoviæ (National Bank of Serbia); Branko Uroseviæ (National Bank of Serbia) |
| Abstract: | We study drivers of permanent and transitory deposit dollarization on a sample of CESE countries using panel cointegration techniques. The results suggest that a positive cointegration relationship exists between permanent dollarization and minimum variance portfolio (MVP) share. This provides additional empirical validation of MVP method as the standard tool for analysing financial dollarization in the long run. In the long run agents make savings decisions based on relative volatilities of inflation and nominal depreciation rates and do not take into the account interest rate spread. In the short run dollarization exhibits persistence. Somewhat different factors affect dollarization in the short than in the long run. Namely, apart from MVP share, dollarization of deposits is in that case driven, also, by interest rate spread and nominal exchange rate movements. Our results suggest that affecting dollarization through change in the interest rate spread may have short term impact on dollarization. In the long run, however, for de-dollarization it is critical to reduce volatility of inflation compared to volatility of exchange rate depreciation. |
| Keywords: | Permanent and transitory dollarization, Transition economies |
| JEL: | C33 E51 E58 G21 G32 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:nsb:wpaper:28&r=mac |
| By: | Paul Cashin; Kamiar Mohaddes; Mehdi Raissi |
| Abstract: | China's GDP growth slowdown and a surge in global financial market volatility could both adversely affect an already weak global economic recovery. To quantify the global macroeconomic consequences of these shocks, we employ a GVAR model estimated for 26 countries/regions over the period 1981Q1 to 2013Q1. Our results indicate that (i) a one percent permanent negative GDP shock in China (equivalent to a one-off one percent growth shock) could have significant global macroeconomic repercussions, with world growth reducing by 0.23 percentage points in the short-run; and (ii) a surge in global financial market volatility could translate into a fall in world economic growth of around 0.29 percentage points, but it could also have negative short-run impacts on global equity markets, oil prices and long-term interest rates. |
| Keywords: | China’s slowdown, global financial market volatility, international business cycle, and Global VAR |
| JEL: | C32 E32 F44 O53 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-57&r=mac |
| By: | Marek Dabrowski |
| Abstract: | The chronic nature of sovereign debt crises has resulted in the growing interest of analysts in finding both their real causes and the mechanisms of cross-country transmission - the so-called contagion effect. In this paper, we will try to answer the frequently asked question: what is the “safe” level of public debt (i.e. what level helps to avoid the risk of sovereign default)? Simultaneously, we will address various conceptual, institutional, and statistical dilemmas related to the definition and measurement of public debt. |
| Keywords: | public debt, fiscal deficit, fiscal policy, public finance management, general government, fiscal rules |
| JEL: | E62 H62 H63 H81 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnrepo:0128&r=mac |
| By: | Julia Thomas (Ohio State University); Aubhik Khan (Ohio State University) |
| Abstract: | We develop an equilibrium model to explain salient business cycle patterns involving aggregate production, sales and inventory investment alongside a distinct set of patterns at high frequencies. Our firms face idiosyncratic productivity shocks and fixed costs of ordering inputs, leading them to order infrequently and accumulate inventories. Thus, the model’s aggregate state vector includes a time-varying distribution of firms over productivities and inventories. Disciplined by data on aggregate inventories and firm-level sales and output, our model reproduces key patterns in the data at business cycle frequencies: Inventory investment is procyclical and positively correlated with final sales, GDP varies more than sales, and the inventory-to-sales ratio is countercyclical. These successes are robust to a wide range of micro-level parameters governing firms’ order costs and relative productivities, while those parameters are key to the model’s high-frequency performance. When order costs are more predictable and shifts in relative productivities are transitory, the model also performs well in key high frequency respects: The relative volatility of inventory investment rises sharply, and sales and inventory investment are negatively correlated, while both series maintain positive correlations with GDP. Despite these distinctions, our model predicts that aggregate fluctuations are surprisingly unaffected by inventories even at high frequencies. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:662&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper discusses the economic developments, outlook, risk, and policies of Croatia. This East European country has begun since the last quarter of 2014 to gradually recover from a six-year recession. In 2015 real GDP grew by 1.6 percent, driven by strong exports and tourism, a revival of private consumption, and higher public investment. Consumer prices have largely been declining over the past two years, mainly due to lower energy and food prices. Unemployment declined only slightly since 2014 and remains very high. However, absent concrete measures to underpin some of the planned reforms, slightly higher deficit in 2016 and a slower pace of consolidation over the medium term are projected. |
| Keywords: | Fiscal policy;Credit;Banks;Credit demand;Labor markets;Unemployment;Minimum wage;Selected Issues Papers;Croatia; |
| Date: | 2016–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/187&r=mac |
| By: | Valerie Cerra |
| Abstract: | This paper presents a stylized general equilibrium model of the Venezuelan economy. The model explains how the recent sharp fall in oil revenue combines with foreign exchange rationing to produce a steep rise in inflation. Counterintuitively, a devaluation of the official exchange rate could temporarily reduce inflation. The model also explains how the hyper-depreciation of the black market exchange rate reflects prices in the most distorted goods markets. |
| Keywords: | Inflation;Venezuela;Fiscal policy;Monetary policy;Devaluation;Official exchange market rates;Shadow economy;Consumer goods;General equilibrium models;inflation; black market; exchange rate; Venezuela; foreign exchange rationing; scarcity; cash in advance constraint; oil revenue; fiscal dominance |
| Date: | 2016–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/159&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that the Italian economy is recovering gradually from a deep and protracted recession. Buoyed by exceptionally accommodative monetary policy, favorable commodity prices, supportive fiscal policy, and improved confidence on the back of the authorities’ wide-ranging reform efforts, the economy grew by 0.8 percent in 2015 and continued to expand in the first quarter of 2016. Labor market conditions have been improving gradually, and nonperforming loans appear to be stabilizing at about 18 percent of total loans. Growth is projected to remain just under 1 percent in 2016 and at about 1 percent in 2017. |
| Keywords: | Article IV consultation reports;Economic recovery;Economic growth;Fiscal reforms;Fiscal policy;Labor markets;Unemployment;Banking sector;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Italy; |
| Date: | 2016–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/222&r=mac |
| By: | Hommes, C.H. (University of Amsterdam); Massaro, D. (University of Amsterdam); Salle, I. (University of Amsterdam) |
| Abstract: | The global economic crisis of 2007-8 pushed many advanced economies into a liquidity trap, a macroeconomic scenario characterised by nominal rates at the zero lower bound (ZLB), low inflation and output below trend. We design an experiment to generate empirical evidence on the effectiveness of policies aimed at managing expectations against liquidity traps in a controlled laboratory environment where expectations are elicited directly from human subjects. Our results suggest that monetary policy alone is not sufficient to insulate the economy from the risk of falling into a liquidity trap, even if it preventively cuts the interest rate when inflation threatens to fall below a certain threshold. However, such policy augmented with a fiscal switching rule succeeds in avoiding and escaping liquidity trap episodes. We also measure larger-than-unity fiscal multipliers when monetary policy is constrained by the ZLB. Experimental results in different treatments are well explained by adaptive learning. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ams:ndfwpp:15-11&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | While economic activity was supported by large new mining investments, growth slowed to 3 percent in 2015, reflecting delayed budget implementation and lower commodity prices. Inflation is expected to remain low. The decline in oil prices narrowed the current account deficit. The authorities plan to stimulate growth through increased public investment in 2016 and over the medium-term. |
| Keywords: | Article IV consultation reports;Economic growth;Oil prices;Public investment;Fiscal policy;Monetary policy;Banks;Bank supervision;Reserves;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Guyana; |
| Date: | 2016–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/216&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This paper discusses Niger’s Eighth Review Under the Extended Credit Facility (ECF) Arrangement and Request for Waivers of Nonobservance of Performance Criteria (PC) and for Modification of PCs. Niger’s medium-term prospects are closely linked to returns on major projects in oil and mineral extraction that are under way. Two of the end-2015 PC for the eighth ECF review were missed (on domestic financing and domestic arrears repayment), as were several indicative targets. The IMF staff supports the authorities’ request for waivers for the unmet PC on domestic financing and domestic arrears repayments at end-December 2015. |
| Keywords: | Extended Credit Facility;Economic growth;Fiscal policy;Financial management;Natural resources;Debt management;Banking sector;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Performance criteria waivers;Niger; |
| Date: | 2016–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/247&r=mac |
| By: | Tigran Poghosyan; Abdelhak S Senhadji; Carlo Cottarelli |
| Abstract: | We assess the extent to which fiscal transfers smooth regional shocks in three large federations: the U.S., Canada, and Australia. We find that fiscal transfers offset 4-11 percent of idiosyncratic shocks (risk-sharing) and 13-24 percent of permanent shocks (redistribution). This fiscal insurance largely operates through automatic stabilizers embedded in a central budget primarily through federal taxes and transfers to individuals, rather than transfers from the central government to state budgets. These results have implications for the design of fiscal risk-sharing mechanisms in the euro area. |
| Keywords: | Fiscal stabilization;United States;Canada;Australia;Fiscal risk;Regional shocks;Stabilization measures;Fiscal policy;public debt cycles, credit cycles, asset price cycles, duration analysis |
| Date: | 2016–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/141&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | A favorable external environment, high utilization of EU funds, and supportive macroeconomic policies have boosted economic growth. The authorities’ medium-term fiscal objective is appropriate, but fiscal framework legislation that would anchor policy is yet to be approved by parliament. The central bank’s use of an exchange rate floor to achieve its inflation target has helped stem deflationary pressures, but inflation is still well below target. The financial system is sound and resilient to shocks. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Fiscal reforms;Monetary policy;Inflation targeting;Negative interest rates;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Czech Republic; |
| Date: | 2016–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/213&r=mac |
| By: | Dr. Thomas Drosdowski (GWS - Institute of Economic Structures Research); Britta Stöver (GWS - Institute of Economic Structures Research) |
| Abstract: | Taxation of incomes generated by economic agents is a main pillar of redistributive social policies undertaken by the government in Germany. The apparent lack of sufficient adjustments of the tax schedule during the period 2005-2015 has led to higher average annual growth rates in taxes than in income. This development has triggered a public dispute about alleged bracket creep, i.e. inflationary-caused nominal income increase pushing taxable income into higher tax bracket, which apparently poses higher tax burden especially among households with small and medium incomes. The aim of this paper is an analysis of the effects of a permanent proportional income tax reduction on the total economy as well as on the income situation of different household types, against the background of repeated public demands for tax reliefs resulting from increased tax burdens in recent years. The taxation scenario is not calculated on a microeconomic level but uses a macro-econometric approach instead, in order to give a broad overview over a wide variety of effects. By combining the macro-econometric input-output model INFORGE with the socio-economic system DEMOS containing household-specific income and consumption information we can assess how a simple fiscal measure would affect the economy, different household types, and inequality. It can be shown that a tax reduction has a positive aggregate effect throughout the economy in all years of the tax reform. Working households with high incomes profit most from simple tax cuts. Non-working households, however, are faced with comparably smaller positive deviations in income, which exacerbates the projected distance between household incomes and contributes to further increasing inequality. |
| Keywords: | taxation, scenario analysis, economic effects, inequality, private housholds |
| JEL: | E27 E62 E64 H2 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:gws:dpaper:16-8&r=mac |
| By: | Emre Alper; R. Armando Morales; Fan Yang |
| Abstract: | This paper analyzes the degree to which volatility in interbank interest rates leads to volatility in financial instruments with longer maturities (e.g., T-bills) in Kenya since 2012, year in which the monetary policy framework switched to a forward-looking approach, relative to seven other inflation targeting (IT) countries (Ghana, Hungary, Poland, South Africa, Sweden, Thailand, and Uganda). Kenya shows strong volatility transmission and high persistence similar to other countries in transition to a more forward-looking monetary policy framework. These results emphasize the importance of a strong commitment to an interbank rate as an operational target and suggest that the central bank could reduce uncertainty in short-term yields significantly by smoothing out the overnight interest rates around the policy rate. |
| Keywords: | Monetary policy;Kenya;Inflation targeting;Interest rates;Treasury bills and bonds;Econometric models;Monetary policy implementation, inflation targeting, volatility transmission |
| Date: | 2016–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/120&r=mac |
| By: | Bick, Alexander; Brüggemann, Bettina; Fuchs-Schündeln, Nicola |
| Abstract: | We use national labor force surveys from 1983 through 2011 to construct hours worked per person on the aggregate level and for different demographic groups for 18 European countries and the US. We find that Europeans work 19% fewer hours than US citizens. Differences in weeks worked and in the educational composition each account for one third to one half of this gap. Lower hours per person than in the US are in addition driven by lower weekly hours worked in Scandinavia and Western Europe, but by lower employment rates in Eastern and Southern Europe. |
| Keywords: | demographic structure; employment; Europe-US hours gap; hours worked; Labor Supply |
| JEL: | E24 J21 J22 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11483&r=mac |
| By: | Wai-Yip Alex Ho; Chun-Yu Ho |
| Abstract: | We find that from 1995 to 2002 in China, the dispersion of wealth decreased, the moneywealth ratio increased for all wealth levels and the aggregate money-output ratio increased. We develop a two-asset dynamic general equilibrium model in which households face a portfolio adjustment cost and a borrowing constraint. We find that financial development lowers the dispersion of wealth by reducing the precautionary motive of households. In addition, tight monetary policies increase the value of money and thus increase the moneywealth ratio for all wealth levels and the aggregate money-output ratio. |
| Keywords: | Inflation;China;Financial markets;Income distribution;Transition economies;Econometric models;Inflation, Borrowing Constraint, Adjustment Cost, Heterogeneous Agents, Wealth Distribution |
| Date: | 2016–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/132&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | This paper discusses recent economic developments, outlook, and risks in the economy of Mexico. The economy continues to grow at a moderate pace. Growth reached 2½ percent in 2015 and is projected to remain at a similar level in 2016. Global financial volatility has increased sharply over the last year, with significant spillovers to Mexico’s financial markets. The flexible credit line (FCL) has served the Mexican economy well. The previous FCL arrangements provided valuable insurance in the immediate aftermath of the 2008–09 global financial crisis and during the euro area crisis and the recent turbulent period in the run-up to the start of U.S. monetary policy normalization. |
| Keywords: | Western Hemisphere;Mexico;monetary fund, credit line, inflation, liquidity, debt |
| Date: | 2016–05–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/137&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | The economy appears to have turned the corner but a disappointing fiscal outcome has not eased concerns about debt sustainability. After protracted stagnation following the 2008 financial crisis, there was a moderate recovery in 2015 and growth is set to pick up. Notwithstanding adjustment efforts, the budget deficit remained high, mainly reflecting delayed implementation of reforms. The large funding requirements were mostly met by the central bank, the National Insurance Scheme, and growing arrears. Continued large deficits pose risks to the fixed exchange rate. |
| Keywords: | Article IV consultation reports;Economic growth;Tourism;Current account deficits;Public debt;Fiscal reforms;Public enterprises;Monetary policy;Nonbank financial sector;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Barbados; |
| Date: | 2016–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/279&r=mac |
| By: | Elif C Arbatli; Dennis P Botman; Kevin Clinton; Pietro Cova; Vitor Gaspar; Zoltan Jakab; Douglas Laxton; Constant A Lonkeng Ngouana; Joannes Mongardini; Hou Wang |
| Abstract: | Japan has ambitious economic goals: 3 percent nominal growth; 2 percent inflation; and a primary budget surplus. Abenomics has employed the three arrows of monetary, fiscal and structural policies, but the goals remain out of reach. We propose that countercyclical measures be embedded in long-run frameworks that anchor expectations for inflation and public debt. In addition, we argue for an incomes policy to assist reflation. Model simulations suggest that, combined, these proposals would make headway towards the goals, with, on balance, a better chance of success than the more unconventional policy alternatives proposed by Krugman, Svensson, and Turner from a risk-return perspective. |
| Keywords: | Fiscal policy;Japan;Labor markets;Wages;Incomes policy;Fiscal reforms;Unconventional monetary policy instruments;Inflation targeting;Econometric models;Japan; monetary policy; fiscal policy; incomes policy; structural reforms |
| Date: | 2016–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/157&r=mac |
| By: | Svetlana Vtyurina; Zulima Leal |
| Abstract: | With the end of the commodity super cycle, Peru’s potential growth has declined, raising questions of what government policies could do to help boost growth, including over the medium-term. Our econometric analysis shows that public investment multipliers have a larger effect on growth than current spending or tax-related stimulus in the short and medium terms. Peru’s low debt and financial savings grants fiscal space for increasing investment spending, which could also entice and complement private investment, provided the former is efficient, fiscally sustainable and complemented by further reforms in public investment management and changes to the decentralization framework. |
| Keywords: | Fiscal policy;Peru;Public investment;Infrastructure;Fiscal stimulus and multipliers;Government expenditures;Fiscal sustainability;Peru, fiscal policy, fiscal sustainability, nonlinear models, multipliers, public investment management, decentralization. |
| Date: | 2016–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/144&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | Macroeconomic outcomes continue to underperform potential, due to the major impact of two exogenous shocks: the lower oil prices and the elevated regional insecurity. Oil revenues have collapsed to a fraction of their previous level and are expected to only partially and gradually recover. Spending has been significantly retrenched, but liquidity problems abound, and domestic arrears are accruing on a large scale. Given the government’s share in the economy, the spillovers to the rest of the economy are severe and recent gains in development outcomes under threat. The threat to security in the region remains serious, causing economic disruption, reprioritization of spending to defense, hosting of refugees and internally displaced persons, and exacerbating the difficult economic situation. |
| Keywords: | Article IV consultation reports;External shocks;Oil prices;Economic growth;Fiscal policy;Fiscal reforms;Banking sector;Economic indicators;Balance of payments statistics;External sector;Debt sustainability analysis;Staff Reports;Press releases;Chad; |
| Date: | 2016–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/274&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | Singapore’s economy continues to perform well, although growth has slowed reflecting a combination of structural and cyclical factors: population aging, restrictions on foreign worker inflows, and slow productivity growth, and a difficult external environment, including the trade growth deceleration and the negative impact on domestic manufacturing of lower oil prices. Disinflation in domestic goods and asset markets and deleveraging continue. Risks to the outlook are skewed to the downside, including from slow global and regional growth and spillovers from renewed global financial volatility. Domestic risks are rooted in still elevated household and corporate leverage and slower-than-expected gains in productivity during the transition to an innovation-based, labor-lean growth model. |
| Keywords: | Article IV consultation reports;China;Economic growth;Fiscal policy;Social safety nets;Infrastructure;Labor markets;Monetary policy;Financial sector;Macroprudential Policy;Economic indicators;Debt sustainability analysis;External Sector Report;Staff Reports;Press releases;Singapore; |
| Date: | 2016–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/263&r=mac |
| By: | Stelios D. Bekiros; Roberta Cardani; Alessia Paccagnini; Stefania Villa |
| Abstract: | In the dynamic stochastic general equilibrium (DSGE) literature there has been an increasing awareness on the role that the banking sector can play in macroeconomic activity. We present a DSGE model with financial intermediation as in Gertler and Karadi (2011). The estimation of shocks and of the structural parameters shows that time-variation should be crucial in any attempted empirical analysis. Since DSGE modelling usually fails to take into account inherent nonlinearities of the economy, we propose a novel time-varying parameter (TVP) state-space estimation method for VAR processes both for homoskedastic and heteroskedastic error structures. We conduct an exhaustive empirical exercise to compare the out-of-sample predictive performance of the estimated DSGE model with that of standard ARs, VARs, Bayesian VARs and TVP-VARs. We find that the TVP-VAR provides the best forecasting performance for the series of GDP and net worth of financial intermediaries for all steps-ahead, while the DSGE model outperforms the other specifications in forecasting inflation and the federal funds rate at shorter horizons. |
| Keywords: | Financial frictions; DSGE; Time-varying coefficients; Extended Kalman filter; Banking sector |
| JEL: | C11 C13 C32 E37 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201611&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | This paper aims to discuss the economic reform program in Jamaica that focuses on reducing macroeconomic vulnerabilities, fostering growth, creating conditions for financial deepening and inclusion, reallocating public resources to maximize economic returns, and improving competitiveness. After three years of difficult economic reforms, inflation is at historical lows, current account deficit has more than halved, net international reserves have doubled, and access to domestic and international financial markets has been restored, supported by upgrades in credit ratings and historically high business confidence indicators. Comprehensive reforms in tax policy and administration have been and continue to be undertaken, while strict adherence to fiscal discipline have helped place debt on a downward trajectory. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Private sector;Income taxes;Fiscal reforms;Tax reforms;Monetary policy;Banking sector;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Jamaica;debt, monetary fund, public debt, tax, exchange |
| Date: | 2016–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/181&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | This 2016 Article IV Consultation highlights that the economy of the Marshall Islands is estimated to have expanded by about 0.5 percent in FY2015 (ending September 30), as the fishery sector recovered. Following a moderate inflation of 1.1 percent in FY2014, headline inflation dropped to –2.2 percent in FY2015 amid falling oil and utility prices. The fiscal balance is estimated to have recorded a surplus of about 3 percent of GDP in FY2014–15, owing to record-high fishing license fees. Growth is expected to rise to about 1.5 percent and inflation to about 0.5 percent in FY2016, as the effects of the drought in earlier 2016 are offset by the resumption of infrastructure projects. |
| Keywords: | Article IV consultation reports;Fiscal policy;Private sector;Public enterprises;Climatic changes;Fiscal reforms;Social security;Fiscal sustainability;Bank supervision;Financial stability;Economic indicators;Debt sustainability analysis;Post-program monitoring;Staff Reports;Press releases;Marshall Islands; |
| Date: | 2016–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/260&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This paper provides a review of Mali’s economic performance under the Extended Credit Facility (ECF) and requests for extension, augmentation of access, and modification of performance criteria. The political situation has continued to stabilize, following the signing of the peace agreement in June 2015. On the macroeconomic side, the recovery continued in 2015, with strong GDP growth, low inflation, and strengthening of the fiscal position. Overall, program implementation in 2015 was strong. All performance criteria and indicative targets for the fifth review were observed, generally with significant margins. The authorities are requesting a one-year extension of the current ECF arrangement, to December 2017. |
| Keywords: | Extended Credit Facility;Economic recovery;Economic growth;Fiscal policy;Tax administration;Fiscal reforms;Financial sector;Bank restructuring;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Mali;revenue, debt, monetary fund, deficit, security |
| Date: | 2016–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/149&r=mac |
| By: | International Monetary Fund. Middle East and Central Asia Dept. |
| Abstract: | This paper discusses Iraq’s First and Second Reviews of the Staff-Monitored Program (SMP) and Request for a Three-Year Stand-By Arrangement. The oil price decline has resulted in a massive reduction in Iraq’s budget revenue, pushing the fiscal deficit to an unsustainable level. The authorities are responding to the crisis with a mix of necessary fiscal adjustment and financing, maintaining their commitment to the exchange rate peg. The authorities started an SMP in November 2015 to establish a track record of policy credibility and pave the way to a possible IMF financing arrangement. Their performance under the SMP has been broadly satisfactory. |
| Keywords: | Staff-monitored programs;External shocks;Oil prices;Balance of payments need;Government expenditures;Payments arrears;Banking sector;Bank restructuring;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Stand-by arrangement requests;Iraq; |
| Date: | 2016–07–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/225&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that the United States is now in its seventh consecutive year of expansion. The unemployment rate has fallen to 4.9 percent, and household net worth is close to precrisis peaks. Nonetheless, the economy has gone through a temporary growth dip in the last two quarters. Lower oil prices led to a further contraction in energy sector investment, and a strong dollar and weak global demand have weighed on net exports. With activity indicators for the second quarter of 2016 rebounding, the economy is expected to grow at 2.2 percent and 2.5 percent in 2016 and 2017, which is above potential. |
| Keywords: | Article IV consultation reports;Economic conditions;Economic growth;Supply-side policy;Fiscal policy;Monetary policy;Financial sector;Banks;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;United States; |
| Date: | 2016–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/226&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | This paper discusses recent economic developments, economic outlook, risks, and challenges in Tonga. The Tongan economy has been rebounding since a contraction in FY2013. Growth accelerated from 2.1 percent in FY2014 to 3.7 percent in FY2015, supported by construction, tourism, strong remittances, and strong private credit, notwithstanding weather-related disruptions to agricultural production. The FY2016 real GDP growth is projected to remain relatively strong at 3.1 percent, driven by a recovery in agriculture and an increase in construction activity in preparation for the South Pacific Games. However, a protracted period of slower growth in advanced and emerging market economies, particularly in Australia and New Zealand, could weigh on Tonga via aid, remittances, and tourism channels. |
| Keywords: | Article IV consultation reports;Economic growth;External shocks;Fiscal policy;Fiscal reforms;Monetary policy;Macroprudential Policy;Banking sector;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Tonga;remittances, inflation, monetary fund, natural disasters, debt |
| Date: | 2016–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/178&r=mac |
| By: | Bergh, Andreas (Research Institute of Industrial Economics (IFN)); Funcke, Alexander (Philosophy, Politics & Economics) |
| Abstract: | The sharing economy (peer-to-peer based sharing or renting activities coordinated through community-based online services) is typically assumed to be closely related to social trust. The two sharing economy companies Airbnb and Flipkey exist in over 100 countries, allowing us to construct a measure of sharing economy penetration to test against social trust and other potential explanations. Results indicate that sharing economy penetration is promoted by ICT-infrastructure and economic openness, whereas the correlation with social trust is negative and often statistically significant. Our conclusion is that sharing economy services do not require high levels of social trust to succeed. Rather, they provide institutions that facilitate trust-intensive economic activities also where social trust is low. |
| Keywords: | Sharing economy; Trust; Information technology |
| JEL: | E20 M13 O17 |
| Date: | 2016–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1130&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | This paper discusses recent developments, outlook and risk, and policies required for a long-lasting recovery of Thailand’s economy. Thailand remains resilient in the face of external and internal challenges. However, political uncertainty and structural bottlenecks cloud long-term prospects. The economy recovered in 2015 after a slowdown induced by political uncertainty. Public investment supported economic activity, particularly through community-based infrastructure projects. Monetary policy was eased in the face of below-target inflation. The credit cycle moderated, but household debt reached a historic high. Implementing high-quality fiscal stimulus, easing monetary policy, and safeguarding financial sector stability can strengthen long-term sustainability, equity, and efficiency of Thailand’s economy. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Infrastructure;Public investment;Monetary policy;Macroprudential Policy;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Thailand;inflation, debt, investment, monetary fund, monetary policy |
| Date: | 2016–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/139&r=mac |
| By: | Modestino, Alicia Sasser (Northeastern University); Shoag, Daniel (Harvard University); Ballance, Joshua (Federal Reserve Bank of Boston) |
| Abstract: | Using a novel database of 82.5 million online job postings, we show that employer skill requirements fell as the labor market improved from 2010 to 2014. We find that a 1 percentage point reduction in the local unemployment rate is associated with a roughly 0.27 percentage point reduction in the fraction of jobs requiring at least a bachelor’s degree and a roughly 0.23 percentage point reduction in the fraction requiring five or more years of experience. This pattern is established using multiple measures of labor availability, is bolstered by similar trends along heretofore unmeasured dimensions of skill, and even occurs within firm‐job title pairs. We further confirm the causal effect of labor market tightening on skill requirements using a natural experiment based on the fracking boom in the United States as an exogenous shock to the local labor supply in tradable, non‐fracking industries. These industries are not plausibly affected by local demand shocks or natural gas extraction technology, but still show fewer skill requirements in response to tighter labor markets. Our results imply this labor market‐induced downskilling reversed much of the cyclical increase in education and experience requirements that occurred during the Great Recession. |
| Keywords: | labor demand; skills; vacancies; unemployment; firm behavior |
| JEL: | D22 E24 J23 J24 J63 |
| Date: | 2016–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:16-9&r=mac |
| By: | J. Nassios; James A. Giesecke; Maureen T. Rimmer; Peter B. Dixon |
| Abstract: | Beginning with Johansen (1960), computable general equilibrium (CGE) models have been widely applied to study the impact of a variety of economic issues of interest to policy makers. These include changes in taxes and tariffs, changes in labour force demographics and skill levels, the impact of epidemics and terrorist attacks, the impact of drought and water policy reform, and the economic costs of climate change mitigation (Dixon and Parmenter (1996); Dixon and Rimmer (2002); Adams (2007); Giesecke et al. (2015); Wittwer and Dixon (2015)). Despite the efficacy of CGE models as tools in policy analysis, key linkages between the real and financial economies are often treated implicitly; for example, the current account deficit is assumed to be financed in full by a foreign agent, e.g., via a small country assumption. In an explicit sense we may ask how the foreign investor chooses to finance a deficit, e.g., do they prefer to purchase domestic agent bonds, equity or a combination of the two instruments? What are the associated implications for relative rates]ofreturn across the suite of domestic financial instruments, and how do changes in relative returns affect domestic agent investment decisions, nominal exchange rates, and the real economy? This paper seeks to address such questions via the development of a theory of the financial sector for a traditional dynamic CGE model of the U.S. (USAGE 2.0). We begin with a brief synopsis of the construction of a financial database for the United States (U.S.), which documents the stocks and transactional flows of 5 financial instruments across 11 distinct agents. The financial database derived herein and the approach documented in Dixon et al. (2015), are then used to develop a new financial CGE model of the U.S. called USAGE2F. Explicit recognition of financial stocks and flows broadens the scope of CGE analyses to include the effects of changes in capital adequacy requirements of key financial agents, e.g., the commercial banks, as we illustrate with an example. The results are subsequently compared to findings of a similar policy scenario in Australia, which are outlined in Giesecke et al. (2016). This analysis serves to illustrate how the impacts of regulatory change (in this case, a rise in capital adequacy ratios) can be affected by jurisdiction]specific differences in the structure of the financial sector. |
| Keywords: | Capital adequacy ratio, financial stability, financial CGE model |
| JEL: | E17 E44 G21 C68 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cop:wpaper:g-263&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This Selected Issues paper examines productivity, growth, structural reforms, and macroeconomic policies in Tanzania. Tanzania experienced macroeconomic stabilization and significant structural change over the last three decades, including two major waves of reforms, first in the mid-1980s and more importantly in the mid-1990s. Both reform waves were followed by total factor productivity (TFP) and growth spurts. Over the recent period, TFP growth decreased, which coincided with a less strong reform drive. It is suggested that a TFP-led growth model is superior and that vigorous reforms are needed to foster further structural transformation of the economy and sustain high productivity gains and investment. |
| Keywords: | Tax revenues;Revenue mobilization;Economic growth;Natural gas;Productivity;Government expenditures;Infrastructure;Education;Health care;Fiscal policy;Fiscal reforms;Monetary policy;Selected Issues Papers;Tanzania; |
| Date: | 2016–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/254&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This paper describes the recent economic developments and economic outlook and risks of the Côte d’Ivoire’s economy. Over the past four years, Côte d’Ivoire’s economic performance has been impressive, in sharp contrast with the preceding 10 years marked by conflicts and economic stagnation. Growth has been accompanied by a modest decline in poverty, but other human development indicators have been slow to improve. Financial sector vulnerabilities could trigger a shock to the economy or reinforce the impact on the real sector of nonfinancial shocks, potentially generating self-reinforcing adverse spillover effects on the economy in the absence of countervailing policy action. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Debt management;Fiscal sustainability;Fiscal reforms;Financial management;Banking sector;Economic indicators;Balance of payments statistics;Millennium Development Goals;Staff Reports;Press releases;debt, investment, poverty, human development, monetary fund |
| Date: | 2016–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/147&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | The currency union of Curaçao and Sint Maarten has important strengths, including a high level of development, good infrastructure, and relatively low public debt. However, preserving these going forward will require surmounting some critical challenges. GDP per capita is already at high-income country levels, but the islands must combat lackluster growth and high unemployment levels by addressing weak competitiveness and improving the investment environment. The fiscal situation remains relatively stable, following the debt relief in 2010, but sustained efforts on fiscal and structural reforms are required to lock in gains and ensure continued fiscal and debt sustainability. The authorities’ structural reform plans are welcomed, but continuity in policy will be essential going forward, particularly in the context of the upcoming elections in both countries, scheduled for September 2016. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Fiscal reforms;Labor market reforms;Financial sector;Offshore financial centers;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Curacao;Sint Maarten;Netherlands; |
| Date: | 2016–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/276&r=mac |
| By: | International Monetary Fund. Fiscal Affairs Dept. |
| Abstract: | This paper discusses key findings of the Fiscal Transparency Evaluation of Kenya. Since 2010, the Treasury has made important changes in Kenya’s public financial management framework, the impact of which can clearly be seen in its performance against the Fiscal Transparency Code. The prospects for quick improvements in the fiscal reporting area are clearly within the grasp of the National Treasury. Fiscal forecasting and budgeting practices are generally in line with good practice under the Fiscal Transparency Code, reflecting more than a decade of experience with medium-term budgeting and preparing and presenting macro frameworks. |
| Keywords: | Fiscal transparency;Fiscal policy;Budgets;Budgeting;Fiscal risk;Risk management;Kenya; |
| Date: | 2016–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/221&r=mac |
| By: | Stefan Laseen; Marzie Taheri Sanjani |
| Abstract: | Inflation dynamics, as well as its interaction with unemployment, have been puzzling since the Global Financial Crisis (GFC). In this empirical paper, we use multivariate, possibly time-varying, time-series models and show that changes in shocks are a more salient feature of the data than changes in coefficients. Hence, the GFC did not break the Phillips curve. By estimating variations of a regime-switching model, we show that allowing for regime switching solely in coefficients of the policy rule would maximize the fit. Additionally, using a data-rich reduced-form model we compute conditional forecast scenarios. We show that financial and external variables have the highest forecasting power for inflation and unemployment, post-GFC. |
| Keywords: | Global Financial Crisis 2008-2009;Inflation;Unemployment;Time series;Vector autoregression;Econometric models;Phillips curve, Inflation, Unemployment, Financial Frictions, Conditional Forecast, Regime Switching and Bayesian Estimation. |
| Date: | 2016–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/126&r=mac |
| By: | Peter Fuleky (Department of Economics, University of Hawaii); Luigi Ventura (Department of Economics and Law, Sapienza, University of Rome); Qianxue Zhao (UHERO, University of Hawaii at Manoa) |
| Abstract: | Existing studies of international risk sharing rely on the highly restrictive assumption that all economies are characterized by symmetric preferences and uniform transmission of global shocks. We relax these homogeneity constraints by modeling aggregate and idiosyncratic fluctuations as unobserved components, and we use Pesaran's (2006) common correlated effects estimator to control for common factors and cross-sectional heterogeneity. We compare the proposed approach with the conventional ones using data from Penn World Table 9.0 for 120 countries. While we do not detect a significant increase in risk sharing during the last four decades, our results confirm that consumption is only partially smoothed internationally and risk sharing is directly related to the level of development. |
| Keywords: | International risk sharing, Consumption insurance, Panel data, Cross-sectional dependence, Heterogeneous effects |
| JEL: | C23 C51 E21 F36 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201612&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | This paper presents an assessment of the monetary policy stance and broad financial conditions in Colombia, which provides insights about macro-financial linkages. It also discusses how nonfinancial corporate debt and leverage have increased in recent years, supported by easy access to capital markets, abundant global liquidity, and low interest rates. While some sectors look somewhat more strained than others (oil, gas, and airlines), debt servicing capacity has also improved with recent economic growth. This paper explores three possible drivers of inflation dynamics in Colombia: exchange rate pass-through, the El Niño meteorological phenomenon, and wages. The Colombian peso depreciated in line with the decline in oil prices, pushing up tradable-goods inflation. |
| Keywords: | Colombia;Western Hemisphere;monetary policy, risk, interest rate, inflation, risk premium |
| Date: | 2016–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/134&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that Peru has successfully navigated the commodity cycle and the 2008–09 global financial crisis, and still leads growth among large Latin American economies. Following a sharp and unexpected drop in 2014, growth picked up in 2015, reaching 3.3 percent largely owing to higher metals production and fishing, and a partial recovery in services and commerce. Peru is now positioned to grow faster in the next two years, as mining production reaches full capacity and large infrastructure projects advance. Inflation is expected to decline. Risks to the outlook are balanced, and downside risks are mostly on the external side. |
| Keywords: | Article IV consultation reports;Economic recovery;Economic growth;Mining sector;Fiscal policy;Fiscal consolidation;Fiscal reforms;Monetary policy;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Peru; |
| Date: | 2016–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/234&r=mac |
| By: | Andrew Hodge |
| Abstract: | This paper studies the impact on growth, welfare, and government debt of fiscal reform packages in a theoretical model drawing together three key features of the endogenous growth literature: (i) investment in technology (in the form of human capital) offsets diminishing marginal productivity of private capital, allowing for perpetual growth in output per capita; (ii) changes in investment behavior because of cuts to distortionary tax rates impact long-run growth; and (iii) public capital has a role influencing total factor productivity and growth. A quantitative simulation using reasonable parameter values suggests that modest capital and/or labor income tax cuts and public investment increases have significant positive effects on consumer welfare but small effects on per capita income growth, where fiscal costs are offset by reductions in unproductive government spending. Capital income tax cuts and public investment increases continue to boost welfare when offset by consumption tax rises (rather than spending cuts), although the welfare benefits of modest labor income tax cuts are outweighed by the costs of a compensating consumption tax increase. |
| Keywords: | Fiscal reforms;Fiscal policy;Public investment;Economic growth;Econometric models;Economic theory;Fiscal policy; Endogenous growth |
| Date: | 2016–07–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/146&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This paper discusses key issues related to Senegal’s economy. Government proposals for constitutional reforms were approved by 63 percent of the vote in a referendum held on March 20, 2016. Growth was robust at 6.5 percent in 2015 and is projected to continue at a similar level this year. Although the economic outlook remains favorable, downside risks remain. Economic policies and structural reforms are needed to sustain growth and continued fiscal consolidation to meet regional convergence criteria. To keep growth buoyant, steadfast action is needed in following three areas: (1) improving business environment to open economic room for small- and medium-sized enterprises and foreign direct investment; (2) strengthening public financial management and governance; and (3) rebuilding government's fiscal space. |
| Keywords: | Policy Support Instrument;Economic growth;Fiscal policy;Public debt;Tax revenues;Fiscal reforms;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Performance criteria modifications;Senegal;debt, investment, monetary fund, instrument, contracts |
| Date: | 2016–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/144&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that economic outcomes in Sierra Leone have deteriorated sharply over the past two years. Growth declined dramatically from 20.7 percent in 2013, to 4.6 percent in 2014, and further to –21.1 percent in 2015. The budget is under severe pressure. Between mid-2014 and end-2015, the Leone depreciated 22 percent against the U.S. dollar. Banking sector vulnerabilities have increased. Living standards have also deteriorated significantly since late 2014. The medium-term outlook is somewhat positive, with growth projected to recover to 4.3 percent in 2016, increasing gradually to about 6.5 percent by 2020. |
| Keywords: | Article IV consultation reports;Fiscal policy;Government expenditures;Wage policy;Financial management;Monetary policy;Price stabilization;Economic indicators;Balance of payments statistics;Extended Credit Facility;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Sierra Leone; |
| Date: | 2016–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/236&r=mac |
| By: | International Monetary Fund. Middle East and Central Asia Dept. |
| Abstract: | This paper discusses Armenia’s Third Review Under the Extended Arrangement, and Request for Waiver and Modification of Performance Criteria (PC). Growth in Armenia is expected to remain subdued as recession in Russia continues and as the base effects of the 2015 one-off factors dissipate. The program performance has been broadly satisfactory. All end-December 2015 PCs, except for the fiscal deficit PC, and all the continuous PCs were met. The fiscal deficit PC was missed by 0.3 percent of GDP. The IMF staff supports completion of the review and the authorities’ request for a purchase in an amount equivalent to SDR 15.65 million. |
| Keywords: | Extended arrangement reviews;Fiscal policy;Fiscal reforms;Monetary policy;Inflation targeting;Bank supervision;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Performance criteria modifications;Performance criteria waivers;Armenia; |
| Date: | 2016–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/246&r=mac |
| By: | Prachi Mishra; Peter J Montiel; Rajeswari Sengupta |
| Abstract: | We examine the strength of monetary transmission in India, using a conventional structural VAR methodology. We find that a tightening of monetary policy is associated with a significant increase in bank lending rates and conventional effects on the exchange rate, though pass-through to lending rates is only partial and exchange rate effects are weak. We could find no significant effects on real output or the inflation rate. Though the message for the effectiveness of monetary transmission in India is therefore mixed, our results for India are more favorable than is often found for other developing countries. |
| Keywords: | Monetary transmission mechanism;India;Banks;Loans;Monetary policy;Inflation targeting;Developing countries;Vector autoregression;Econometric models;monetary policy, bank lending, India |
| Date: | 2016–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/167&r=mac |
| By: | Wong, Soon-Ming; Loi, Siew-Ling |
| Abstract: | Over the past few decades, voluminous studies have been carried out to find out the money influence on real economy activity. Various models and methodologies have been employed to empirically examine the precision of monetary neutrality proposition as well as the money validity in order to generate the answer on whether money is posited a viable variable of monetary policy. This paper discussed some varied empirical findings in general as well as in Japanese context out of these numerous literature. |
| Keywords: | Long-run Neutrality of Money, Money Influence in Japanese Economy |
| JEL: | E5 |
| Date: | 2016–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73559&r=mac |
| By: | Alberto Behar; Armand Fouejieu |
| Abstract: | After the decline in oil prices, many oil exporters face the need to improve their external balances. Special characteristics of oil exporters make the exchange rate an ineffective instrument for this purpose and give fiscal policy a sizeable role. These conclusions are supported by regression analysis of the determinants of the current account balance and of the trade balance. The results show little or no relationship with the exchange rate and, especially for the less diversified oil exporters (including the Gulf Cooperation Council), a strong relationship with the fiscal balance or government spending. |
| Keywords: | Oil exporting countries;Cooperation Council for the Arab States of the Gulf;Exchange rates;Current account balances;Balance of trade;Fiscal policy;Regression analysis;Econometric models;Keywords: Oil exporters, current account, trade balance, fiscal policy, exchange rates, trade volume elasticities, Marshall Lerner conditions |
| Date: | 2016–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/107&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper examines the selected issues related to the economy of Denmark: divergence in house prices, house prices in Denmark's cities, macroprudential policies, and product market reform and firm productivity. Recent house price developments in Denmark have been characterized by a growing divergence between different parts of the country, with big cities experiencing much more rapid price increases than other parts. House price booms and busts in Denmark, like in many other countries, are a big-city phenomenon. Macroprudential policies can help contain risks for households, the financial system, and the broader economy, but they should be carefully calibrated to avoid an undue drag on growth. |
| Keywords: | Housing;Housing prices;Productivity;Industry;Private sector;Macroprudential Policy;Selected Issues Papers;Denmark; |
| Date: | 2016–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/185&r=mac |
| By: | Gonzalez-Eiras, Martin; Niepelt, Dirk |
| Abstract: | We propose a theory of tax centralization and inter governmental grants in politico-economic equilibrium. The cost of taxation differs across levels of government because voters internalize general equilibrium effects at the central but not at the local level. This renders the degree of tax centralization and the tax burden determinate even if none of the traditional, expenditure-related motives for centralization considered in the fiscal federalism literature is present. If central and local spending are complements and the trade-off between the cost of taxation and the benefit of spending is perceived differently across levels of government, inter governmental grants become relevant. Calibrated to U.S. data, our model helps to explain the introduction of federal grants at the time of the New Deal, and their increase up to the turn of the twenty-first century. Grants are predicted to increase to approximately 5.5% of GDP by 2060. |
| Keywords: | Fiscal Federalism; Grants; Markov equilibrium; Politico-economic equilibrium; Public Goods |
| JEL: | D72 E62 H41 H77 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11482&r=mac |
| By: | International Monetary Fund. Asia and Pacific Dept |
| Abstract: | After decades of impressive economic progress, Korea’s growth has slowed, and the economy is facing a number of structural headwinds, including: unfavorable demographics; heavy export reliance; pockets of corporate vulnerabilities; labor-market distortions; lagging productivity; a limited social safety net; and high household debt. Inequality and poverty are also of concern. On the positive side, Korea has considerable fiscal space to manage these challenges. |
| Keywords: | Article IV consultation reports;Economic conditions;Fiscal policy;Corporate sector;Debt restructuring;Monetary policy;Economic indicators;Balance of payments statistics;International trade;External Sector Report;Staff Reports;Press releases;Korea, Republic of; |
| Date: | 2016–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/278&r=mac |
| By: | Michele Andreolli; Aidar Abdychev |
| Abstract: | This paper analyses a large public investment in a construction of a hydropower plant in Lesotho and its implications on the growth and debt sustainability. The paper employs an open economy dynamic general equilibrium model to assess the benefits of a large public investment through growth-enhancing increase in domestic energy supply and receipts from selling electricity abroad to ease the fiscal burden, which is often associated with big investment projects. During the transition (construction stage), various financing options are explored: increase in the public debt, increase in domestic revenue (fiscal adjustment), and combination. The calibration matches Lesotho's data and it captures the project's main challenges regarding the project costs. Moreover,the key remaining issue is the agreement with South Africa to purchase sufficient amount of electricity to allow the potential plant to run at a high capacity. We find that, the project can lead to sizable macroeconomic benefits as long as costs are relatively low and demand from South Africa is sufficiently high. However, the risks for the viability of the project are high, if these assumptions are violated. |
| Keywords: | Public investment;Lesotho;Electricity;Energy sector;Economic growth;Debt sustainability;Econometric models;Public Investment, Energy Production, Growth, Debt Sustainability, Fiscal Policy. |
| Date: | 2016–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/115&r=mac |
| By: | Gabriele Camera (Chapman University and University of Basel); Dror Goldberg (The Open University of Israel); Avi Weiss (Bar-Ilan University and Taub Center for Social Policy Research of Israel and IZA) |
| Abstract: | The theory of money assumes decentralized bilateral exchange and excludes centralized multilateral exchange. However, endogenizing the exchange process is critical for understanding the conditions that support the use of money. We develop a “travelling game” to study the spontaneous emergence of decentralized and centralized exchange, theoretically and experimentally. Players located on separate “islands” can either trade locally, or pay a cost to trade elsewhere, so decentralized and centralized markets can both emerge in equilibrium. The latter maximize trade meetings and are socially efficient; the former minimize trade costs through the use of money. In the laboratory, centralized exchange more frequently emerges when subjects perform diversified economic tasks, but also when they interact in large groups. This shows that to understand the emergence of money it is important to amend the theory of money such that the market structure is endogenized. |
| Keywords: | endogenous institutions, macroeconomic experiments, matching, coordination, markets, money |
| JEL: | E4 E5 C9 C92 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:16-19&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | This paper describes recent economic developments, outlook, risks, and policy challenges of the Canadian economy. After almost two years, the effects of the oil price shock continue to reverberate through the Canadian economy. Growth has decelerated, but inflation expectations remain well anchored. With the slowdown in growth, the output gap has reopened. Persistently low energy prices pose an important risk to the economy. The banking system remains sound, but exposure to the oil and gas sector will require higher provisions against expected losses. The policy mix over the near-term should cushion the adverse effects of lower oil prices on the economy while safeguarding financial stability. |
| Keywords: | Article IV consultation reports;Economic growth;External shocks;Oil prices;Monetary policy;Exchange rate depreciation;Financial sector;Housing;Fiscal policy;Fiscal reforms;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Canada;oil prices, investment, market, monetary fund, inflation |
| Date: | 2016–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/146&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | El Salvador continues to suffer from significantly lower growth than neighboring countries amid low investment, high outward migration, weak competitiveness, and political gridlock. Fiscal pressures remain substantial. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal risk;Fiscal policy;Government expenditures;Wages;Banking sector;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;El Salvador; |
| Date: | 2016–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/208&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | This paper focuses on the economic developments, economic policies, and economic risks in Burkina Faso. Economic activity remained sluggish over the course of 2015 and in early 2016, amidst political uncertainty and weather shocks. The overall fiscal deficit increased by 0.3 percentage points of GDP compared with 2014, as the sharp decline in revenues was offset by expenditure compression. However, growth is projected to gradually recover in 2016, albeit at a slower rate than anticipated at the time of the 2nd/3rd Extended Credit Facility reviews. Fiscal policy in 2016 will remain prudent and anchored by the WAEMU convergence criterion. Moreover, the authorities are prioritizing measures to boost domestic revenue mobilization. |
| Keywords: | Extended Credit Facility;Economic conditions;Economic growth;Fiscal policy;Fiscal reforms;Energy sector;Banking sector;Economic indicators;Balance of payments statistics;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Burkina Faso;revenue, poverty, investment, revenues, security |
| Date: | 2016–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/173&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | Madagascar is a fragile country striving to recover from an extended political crisis and international isolation from 2009 to 2013, during which key social and developmental indicators deteriorated. Low revenue collection, substantial low-priority public spending, and governance problems are holding back recovery. Nevertheless, broadly satisfactory performance under the six-month staff monitored program that ended in March 2016 is a sign of improving implementation capacity. |
| Keywords: | Extended Credit Facility;Economic growth;Fiscal policy;External borrowing;Fiscal reforms;Corruption;Monetary policy;Bank supervision;Economic indicators;Balance of payments statistics;Staff-monitored programs;Letters of Intent;Staff Reports;Press releases;Madagascar; |
| Date: | 2016–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/273&r=mac |
| By: | Engler, Philipp; Tervala, Juha |
| Abstract: | Several studies have analyzed the trade and output effects of the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union, but our paper is the first attempt to study its welfare effects. We measure the welfare effect of TTIP as the percentage of initial consumption that households would be willing to pay for TTIP in order to remain as well off with TTIP as without it. The discounted present value of the welfare gain of TTIP, which leads to the elimination of tariffs and cuts in non-tariff measures by 25%, is in the range of 1% to 4% of initial consumption, depending on the parameterization. The welfare gain increases in the elasticity of substitution between domestic and foreign goods. The bulk of the welfare gain is caused by cuts in non-tariff measures. |
| Keywords: | tariffs,TTIP,trade agreement,trade liberalization |
| JEL: | F13 F41 E60 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201617&r=mac |
| By: | Banegas, Ayelen; Montes-Rojas, Gabriel; Siga, Lucas |
| Abstract: | We study the links between monetary policy and mutual fund flows, and the potential risks to financial stability that might arise from such flows, using data over the 2000-14 period. We find that monetary policy can have a direct influence on the allocation decisions of mutual fund investors. In particular, we show that monetary policy shocks explain mutual fund flow dynamics and that the effect of these shocks differs by investment strategy. Results suggest that positive shocks to the path of monetary policy (unexpected tightening) are associated with persistent outflows from bond mutual funds. Conversely, a tighter-than-expected monetary policy path will cause net inflows into equity funds. In an industry that "mutualizes" redemption costs and where many funds may engage in liquidity transformation, our flow-performance analysis provides evidence of the potential existence of a first-mover advantage in less liquid segments of the market. |
| Keywords: | First-mover advantage ; Monetary policy ; Mutual fund flows |
| JEL: | G20 G23 E52 |
| Date: | 2016–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2016-71&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | The economy is recovering from the effects of the Ebola epidemic but is facing severe headwinds from the decline in commodity prices. The authorities’ economic strategy for 2016–22 rests on large investments in electricity, transport, and agriculture, and aims at unlocking shared and broad-based growth. GDP per capita is expected to grow by 1½ percent on average per year during the next five years, after remaining broadly stagnant over the last five years. |
| Keywords: | Article IV consultation reports;Fiscal policy;Public investment;Current account;Real effective exchange rates;Monetary policy;Exchange rates;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Guinea; |
| Date: | 2016–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/261&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper provides an assessment of the economic conditions, outlook, and crises in Iceland. There is a mounting sense that capital controls hurt growth prospects, repressing local financial markets, scaring foreign investors, and impeding savings diversification, and that it is time for them to go. Recent settlements with the bank estates are a huge step forward, improving already favorable macroeconomic conditions. At 4 percent in 2015 and gaining pace, real GDP expansion is among the fastest growing in Europe, opening up a positive output gap. However, the biggest risk for Iceland is overheating. Large wage awards on top of already hot economic readings speak to Iceland’s boom-bust history. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Wage bargaining;Capital account liberalization;Banking sector;Monetary policy;Bank supervision;Exchange restrictions;Debt sustainability analysis;Staff Reports;Press releases;Iceland;monetary fund, debt, markets, capital flows, investment |
| Date: | 2016–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/179&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper aims to determine how much of the economic slowdown of Albania is owing to cyclical conditions and how much to a reduction in potential growth. The analysis shows that average growth in 2009–14 dropped by 3.2 percentage points relative to 1997–2008, of which 2.8 percentage points are due to lower potential growth. Albania has significant potential to improve its export competitiveness. However, Albania’s competitiveness has shown narrow improvements over the past five years, with weak productivity growth and continued concentration in low-skilled labor-intensive sectors with limited value added. This paper also explores the factors underpinning Albania’s relatively low level of general government revenues. |
| Keywords: | Economic growth;Productivity;Tax policy;Tax revenues;Tax system reviews;Global competitiveness;Export performance;Selected Issues Papers;Albania;growth, capital, potential output, gdp, credit |
| Date: | 2016–06–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/143&r=mac |
| By: | George Kopits |
| Abstract: | In response to the recent financial crisis and the ensuing buildup in public indebtedness, an increasing number of advanced economies have created independent fiscal institutions (IFIs) to improve the quality of public finances and to strengthen the credibility of government policy. A review of Japan’s fiscal policymaking over the past decades suggests that Japan would greatly benefit from establishing an IFI in line with internationally accepted standards of good practice. Such an institution could help correct critical weaknesses in policymaking and anchor expectations, especially if introduced as part of a fiscal framework with a medium-term perspective. |
| Keywords: | Fiscal policy;Japan;Public finance;Public debt;Debt sustainability;Fiscal transparency;Fiscal sustainability;Japan’s fiscal policy; public debt sustainability; independent fiscal institutions. |
| Date: | 2016–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/156&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | This 2016 Article IV Consultation highlights that the Dominican economy was hit hard by tropical storm Erika in 2015. Agricultural output and manufacturing declined sharply, as the storm affected crops and access to arable land, and prompted the closure of operations of the main industrial plant. Inflation has remained subdued, mainly as a result of falling fuel prices. Notwithstanding weak exports of agriculture and tourism, the 2015 current account deficit remained contained on the back of lower oil imports. Output growth is expected to remain subdued in 2016 at 1.3 percent as the economy slowly recovers from the storm and investment in reconstruction picks up. |
| Keywords: | Article IV consultation reports;External shocks;Economic growth;Fiscal policy;Fiscal reforms;Banking sector;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Dominica; |
| Date: | 2016–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/244&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper examines Iceland’s expenditure policy, especially five expenditure pressure points, as well as capital flows and monetary policy effectiveness in small open economies. The postcrisis fiscal adjustment demanded painful choices, with spending on healthcare, education, and investment suffering cuts in real terms. While expenditures in these areas have rebounded more recently, there is a room for further decompression. Using quarterly panel data for 18 advanced and emerging small open economies during 2002–15, it finds that monetary policy is focused on inflation developments, but also that domestic interest rates affect capital flows, raising concerns about a reinforcing loop between monetary policy and capital flows. |
| Keywords: | Government expenditures;Health care;Education;Public investment;Fiscal policy;Monetary policy;Macroprudential Policy;Capital flows;Small states;Selected Issues Papers;Iceland;expenditure, investment, public investment, monetary fund, tax |
| Date: | 2016–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/180&r=mac |
| By: | Bhattacharya, Rudrani (National Institute of Public Finance and Policy) |
| Abstract: | During the recent episode of persistently high food inflation in India, the role of rent seeking activities of food suppliers emerged as the centre of debate in the country. The rent seeking activities of agents in both wholesale and retail marketing of food, catered by the lack of a competitive food market and required infrastructure, often causes large positive shocks to mark ups. This paper estimates the contribution of these mark-up shocks at both wholesale and retail level, in food inflation, an issue unexplored in the literature till date. The study finds moderate but significant pass through of mark-up shocks in food inflation after controlling for other factors. The duration of the transmission effect depends on the origin of the shock in wholesale market, while the effect seems to last for five months in retail food inflation. In the backdrop of advocated competitive national market for food commodities to promote greater competition and stabilise large shocks to mark ups, this paper contributes towards understanding the extent to which stabilisation of mark-up shocks can lower wholesale and retail food inflation in the country. |
| Keywords: | Food inflation ; India ; Mark-up shock ; National market for food commodities ; SVAR |
| JEL: | C51 E31 Q11 Q13 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:16/173&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | Poland continued its convergence to average EU income levels, growing well above most of its peers. Yet, significant regional disparities and long-term structural challenges remain. The new government, which took office in November 2015, has introduced a number of new policies, some of which have dented investor sentiment and could weaken growth going forward. The near-term outlook is for continued expansion with low oil prices weighing on inflation. External risks to the outlook remain elevated and prospects of controversial policy initiatives have heightened domestic risks. Sound institutions, growth-friendly policies, and structural reforms are critical to achieve sustainable and inclusive growth. |
| Keywords: | Article IV consultation reports;Economic growth;Fiscal policy;Fiscal consolidation;Fiscal reforms;Monetary policy;Inflation targeting;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Poland; |
| Date: | 2016–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/210&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | It is a challenging time. The fall in oil prices has taken a toll on the mainland (i.e. non-oil and gas) economy, with growth falling to 1 percent in 2015 and rising unemployment. At the same time, the recent rise in the number of asylum seekers presents new challenges. |
| Keywords: | Article IV consultation reports;Economic growth;Oil prices;Unemployment;Labor markets;Immigration;Fiscal policy;Fiscal reforms;Housing;Macroprudential Policy;Monetary policy;Banking sector;Economic indicators;Staff Reports;Press releases;Norway; |
| Date: | 2016–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/214&r=mac |
| By: | International Monetary Fund. European Dept. |
| Abstract: | This paper focuses on the key issues related to the economy of Latvia. Growth picked up somewhat last year despite a weak external environment. GDP growth rose to 2.7 percent, up about ¼ percent over the previous year. However, growth is expected to slow slightly in 2016 to 2½ percent. While Latvia continues to make steady economic progress, a key challenge will be to generate the growth necessary to sustain the pace of income convergence with Western Europe. Structural reforms will be required to improve state-owned enterprise governance and strengthen the business environment, upgrade public infrastructure, and modernize legal systems. |
| Keywords: | Article IV consultation reports;Economic growth;Productivity;Fiscal policy;Fiscal reforms;Banking sector;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Latvia;monetary fund, market, inflation, tax, economic developments |
| Date: | 2016–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/171&r=mac |
| By: | International Monetary Fund. African Dept. |
| Abstract: | South Africa has made considerable economic and social strides since 1994, but faces significant challenges. Deep-rooted structural problems—infrastructure bottlenecks, skill mismatches, and harmful insider-outsider dynamics—have kept unemployment and inequality unacceptably high. Also, a confluence of external and domestic shocks, combined with heightened governance concerns and policy uncertainty, have weighed on confidence and growth. Though private balance sheets are still strong, vulnerabilities are elevated. |
| Keywords: | Article IV consultation reports;Economic growth;Unemployment;Fiscal policy;Fiscal reforms;Public enterprises;Monetary policy;Financial sector;Banks;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;South Africa; |
| Date: | 2016–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/217&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Abstract: | El Salvador: Selected Issues |
| Keywords: | Economic growth;Migration;Inward remittances;Fiscal policy;Pensions;Banking sector;External borrowing;Bank credit;Private sector;Selected Issues Papers;El Salvador; |
| Date: | 2016–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:16/209&r=mac |
| By: | Sergi Lanau; Petia Topalova |
| Abstract: | This paper examines the role of removing obstacles to competition in product markets in raising growth and productivity. Using firm-level data from Italy during 2003–13 and OECD measures of product market regulation, we estimate the effect of deregulation in network sectors on value added and productivity of firms in these sectors, as well as firms using these intermediates in their production processes. We find evidence of a significant positive impact. These effects are more pronounced in Italian provinces with more efficient public administration, underscoring the complementarities of advancing public administration and product market reforms simultaneously. |
| Keywords: | Business enterprises;Italy;Industry;Services;Total factor productivity;Labor productivity;Markets;Fiscal reforms;Economic sectors;Time series;Econometric models;productivity, growth, structural reforms, product markets |
| Date: | 2016–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/119&r=mac |
| By: | Yasser Abdih; Ravi Balakrishnan; Baoping Shang |
| Abstract: | Over the past two decades, U.S. core PCE goods and services inflation have evolved differently. Against the backdrop of global concerns of low inflation, we use this trend as motivation to develop a bottom-up model of U.S. inflation. We find that domestic forces play a larger role relative to foreign factors in influencing core services inflation, while foreign factors predominantly drive core goods price changes. When comparing forecasting performance, we find that both the aggregate Phillips curve and the bottom up approach give low root mean square errors. The latter, however, is more informative in tracing the effects of shocks and understanding the exact channels through which they affect aggregate inflation. Using scenario analysis—and given a relatively low sensitivity of core inflation to changes in slack, both at the aggregate Phillips curve and sub-components levels—we find that global pressures will likely keep core PCE inflation below 2 percent for the foreseeable future unless the dollar starts to depreciate markedly and the unemployment rate goes well below the natural rate. These results support the accommodative stance of monetary policy pursued thus far and, going forward, underscore the need for proceeding cautiously and very gradually in raising the federal funds rate. |
| Keywords: | Inflation;United States;Goods;Services;Health care;Monetary policy;Inflation measurement;Econometric models;Forecasting models;Inflation modeling and forecasting, Phillips curve, core goods and services inflation. |
| Date: | 2016–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/124&r=mac |