nep-tra New Economics Papers
on Transition Economics
Issue of 2014‒07‒13
34 papers chosen by
J. David Brown
IZA (Institute for the Study of Labor)

  1. Between Light and Shadow: Informality in the Russian Labour Market By Gimpelson, Vladimir; Kapeliushnikov, Rostislav
  2. The domestic segment of global supply chains in China under state capitalism By Tang, Heiwai; Wang, Fei; Wang, Zhi
  3. Capital’s long march west: saving and investment frictions in Chinese regions By Samuel Cudré
  4. A provincial view of global imbalances: regional capital flows in China By Samuel Cudré; Mathias Hoffmann
  5. Institutions of the Russian fiscal federalism: 20 years of evolution By Elena Jarocinska
  6. The Quality of China’s GDP Statistics By Carsten A. Holz
  7. Boosting Job Growth in the Western Balkans By Dmitriy Kovtun; Alexis Mayer Cirkel; Zuzana Murgasova; Dustin Smith; Suchanan Tambunlertchai
  8. Do Employers Prefer Undocumented Workers? Evidence from China's Hukou System By Kuhn, Peter J.; Shen, Kailing
  9. Fiscal Vulnerabilities and Risks from Local Government Finance in China By Yuanyan Sophia Zhang; Steven Barnett
  10. The environmental implications of Russia's accession to the world trade organization By Bohringer, Christoph; Rutherford, Thomas F.; Tarr, David G.; Turdyeva, Natalia
  11. China’s Monetary Policy and Interest Rate Liberalization: Lessons from International Experiences By Wei Liao; Sampawende J.-A. Tapsoba
  12. Les IDE dans les pays d’Europe centrale et orientale : une approche gravitationnelle By Miriam Brahim; Khaled Guesmi; FrédéricTeulon
  13. Russian Federation: Fiscal Transparency Evaluation By International Monetary Fund. Fiscal Affairs Dept.
  14. Decoding the Growth-Nutrition Nexus in China: Inequality, Uncertainty and Food Insecurity By Jing You; Katsushi S. Imai; Raghav Gaiha
  15. Convergence and differentiation processes in local markets and structural changes (comparison of 16 markets in Poland) By Grażyna Baldowska; Robert Leszczyński; Barbara Myszkowska
  16. Modelování optimální výše zápisného na české veřejné vysoké školy By Mazurek, Jiří
  17. Regional Policy and FDI Location – an Overview of the Larger New EU Member States By Gabor Hunya
  18. Inflation expectations in Poland, 2001–2013. Measurement and macroeconomic testing By Tomasz Lyziak
  19. Yugoslav Republic of Macedonia: Second Post-Program Monitoring Discussions By International Monetary Fund. European Dept.
  20. Interest rate pass-through in Poland. Evidence from individual bank data By Ewa Stanisławska
  21. Romania: First and Second Reviews Under the Stand-By Arrangement and Request for Waiver of Nonobservance of a Performance Criterion, Modification of Program Conditionality, and Rephasing of the Availability Dates of Purchases; Staff Report; Press Release; and Statement by the Executive Director for Romania By International Monetary Fund. European Dept.
  22. Republic of Poland: Review under the Flexible Credit Line Arrangement By International Monetary Fund. European Dept.
  23. Republic of Armenia: Request for Arrangement Under the Extended Fund Facility; Staff Report; Press Release; and Statement by the Executive Director for the Republic of Armenia By International Monetary Fund. Middle East and Central Asia Dept.
  24. Growth Strategy with Social Capital and Physical Capital- Theory and Evidence: the Case of Vietnam. By Cuong Le Van; Anh-Ngoc Nguyen; Ngoc-Minh Nguyen
  25. Poziom obciazen fiskalnych w Polsce po globalnym kryzysie finansowym na tle pozostalych krajów Unii Europejskiej (The Level of Fiscal Burden in Poland After the Global Financial Crisis in Comparison to Other Countries of the European Union) By Adam P. Balcerzak
  26. Bosnia and Herzegovina: Fifth Review Under the Stand-By Arrangement and Request for Waivers of Applicability and Extension and Augmentation of the Arrangement By International Monetary Fund. European Dept.
  27. Monetary Policy in Hybrid Regimes: The Case of Kazakhstan By Natan P. Epstein; Rafael Portillo
  28. Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period - a Fortune or Misfortune? By Christian Ebeke; Yinqiu Lu
  29. Labour Migrant Adjustments in the Aftermath of the Financial Crisis By Bratsberg, Bernt; Raaum, Oddbjørn; Røed, Knut
  30. Republic of Belarus: Fifth Post-Program Monitoring Discussions By International Monetary Fund. European Dept.
  31. People’s Republic of China––Hong Kong Special Administrative Region: Financial System Stability Assessment By International Monetary Fund. Monetary and Capital Markets Department
  32. Bulgaria’s EU Funds Absorption: Maximizing the Potential! By Iana Paliova; Tonny Lybek
  33. Republic of Estonia: Technical Assistance Report-Revenue Administration Gap Analysis Program-The Value-Added Tax Gap By International Monetary Fund. Fiscal Affairs Dept.
  34. Gender wage gap when women are highly inactive: Evidence from repeated imputations with Macedonian data By Petreski, Marjan; Mojsoska-Blazevski, Nikica; Petreski, Blagica

  1. By: Gimpelson, Vladimir (CLMS, Higher School of Economics, Moscow); Kapeliushnikov, Rostislav (CLMS, Higher School of Economics, Moscow)
    Abstract: Economic growth in Russia in the first decade of this century almost doubled the country's GDP but was accompanied by substantial reallocation of labor to the unregulated sector while formal employment was on gradual decline. The paper overviews evolution of the Russian labour market during the period of 2000-10 and discusses most general implications of informality to employment and earnings as well as the associated political economy challenges and consequences.
    Keywords: informal labour market, employment, Russia
    JEL: J31 J40 P2
    Date: 2014–06
  2. By: Tang, Heiwai; Wang, Fei; Wang, Zhi
    Abstract: This paper proposes methods to incorporate firm heterogeneity in the standard input-output table-based approach to portray the domestic segment of global value chains in a country. The analysis uses Chinese firm census data for the manufacturing and service sectors, along with constrained optimization techniques. The conventional input-output table is split into sub-accounts, which are used to estimate direct and indirect domestic value added in exports of different types of firms. The analysis finds that in China, state-owned enterprises and small and medium domestic private enterprises have much higher shares of indirect exports and ratios of value-added exports to gross exports compared with foreign-invested and large domestic private firms. Based on input-output tables for 2007 and 2010, the paper finds increasing value-added export ratios for all firm types, particularly for state-owned enterprises. It also finds that state-owned enterprises are consistently more upstream while small and medium domestic private enterprises are consistently more downstream within industries. These findings suggest that state-owned enterprises still play an important role in shaping China's exports.
    Keywords: Economic Theory&Research,Free Trade,Microfinance,Trade Policy,Investment and Investment Climate
    Date: 2014–06–01
  3. By: Samuel Cudré
    Abstract: While China has been pivotal in discussions and academic research on global imbalances, little is known about macroeconomic external imbalances among Chinese regions and the factors driving them. We use aggregate regional data and estimate provincial total factor productivity growth over 1984-2010. We observe that provinces that caught up relatively to national TFP had capital outflows while those that fell behind had capital inflows: there seems to be a capital allocation puzzle at the regional level inside China. We follow up by identifying the drivers of this pattern using the methodology developed in Gourinchas and Jeanne (2013) to compute regional investment and saving wedges. By relating those frictions with TFP catch-up parameters, we find an investment and a saving puzzle: regions that caught up relative to the rest of China seem to have lower investment rate (higher investment tax) and higher saving (lower saving tax) relative to the prediction of the neoclassical model. We exploit Chinese cross-regional variation in key characteristics suggested by the literature and find robust explanatory variables of the wedges: factors related to the ownership type, the level of integration into the world economy and the economic structure are highly correlated with the identified frictions.
    Keywords: China, Chinese provinces, wedges, frictions, saving, investment, regional capital flows, global imbalances, capital allocation puzzle
    JEL: F21 F36 F40 F43
    Date: 2014–06
  4. By: Samuel Cudré; Mathias Hoffmann
    Abstract: We model capital flows among Chinese provinces using a theory-based variance decomposition that allows us to gauge the importance of various channels of external adjustments at the regional level: variation in intertemporal prices—domestic and international interest rates and the real exchange rate—and intertemporal variation in quantities (cash flows of output, investment and government spending). We find that our simple framework can account for around 85 percent of the variation in regional capital flows over the 1985-2010 period. Our results suggest that the relative importance of private and state-owned enterprises, a province’s level of integration into the world economy and its sectoral composition play an important role for external adjustment vis-à-vis the rest of China and the world. Specifically, we find strong empirical support for the view that differential access of private and state-owned enterprises to finance is a key driver of China’s surpluses. We discuss implications of our results for global imbalances in capital flows.
    Keywords: China, Chinese provinces, capital flows, current account, global imbalances, external adjustment, present-value models, regional business cycles
    JEL: F30 F32 F40
    Date: 2014–06
  5. By: Elena Jarocinska
    Abstract: In this brief, the author summarizes the main thrust of Russian federal fiscal institutions and discusses their specific features. She describes the evolution of federal fiscal regulations since the establishment of the Russian federal state. As a conclusion, she offers the following policy recommendations: tax autonomy of subnational governments which is currently very limited should be increased; federal aid should be further formalized and made more transparent; regulations should not be changed from year to year to provide for a more stable environment; and subnational interests should be better protected at the institutional level.
    Keywords: Russia, fiscal reforms, monetary policy
    Date: 2014–06
  6. By: Carsten A. Holz (Hong Kong University of Science & Technology)
    Abstract: Since the 1998 “wind of falsification and embellishment,” Chinese official statistics on gross domestic product (GDP) have repeatedly come under scrutiny. This paper evaluates the quality of China’s GDP statistics in four stages. First, it reviews past and ongoing suspicions of the quality of GDP data and examines the evidence. Second, it documents the institutional framework for data compilation and concludes on the implications for data quality. Third, it asks how the Chinese National Bureau of Statistics could possibly go about credibly falsifying GDP data without being found out. Fourth, it examines if the first- and second-digit distributions of official GDP data conform to established data regularities (Benford’s Law). The findings are that the supposed evidence for GDP data falsification is not compelling, that the National Bureau of Statistics has much institutional scope for falsifying GDP data, and that certain manipulations of nominal and real data would be virtually undetectable. Official GDP data, however, exhibit few statistical anomalies (conform to Benford’s Law) and the National Bureau of Statistics thus either makes no significant use of its scope to falsify data, or is aware of statistical data regularities when it falsifies data.
    Keywords: accuracy of national statistics, national income accounting, compilation of GDP and sectoral value added, national statistical system, Benford's Law
    JEL: C82 R1 P27 O53
    Date: 2014–06
  7. By: Dmitriy Kovtun; Alexis Mayer Cirkel; Zuzana Murgasova; Dustin Smith; Suchanan Tambunlertchai
    Abstract: Labor markets in the Western Balkan countries (Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia) are characterized by some of the highest unemployment and low employment rates in Europe. We analyze the poor labor market outcomes in these countries by comparison with the New Member States of the European Union and advanced European economies. Our findings suggest that long-lasting labor market weaknesses in the Western Balkans have structural roots: the institutional setup of the labor markets, labor cost factors, and especially the unfinished transition process. Finally, we offer policy recommendations for boosting job creation.
    Keywords: Labor markets;Albania;Bosnia and Herzegovina;Kosovo;Macedonia, former Yugoslav Republic of;Montenegro;Serbia;Eastern Europe;Workers remittances;Emerging markets;Cross country analysis;Labor markets; The Balkans
    Date: 2014–01–28
  8. By: Kuhn, Peter J. (University of California, Santa Barbara); Shen, Kailing (Xiamen University)
    Abstract: We study urban Chinese employers' preferences between workers with and without a local residence permit (hukou) using callback information from an Internet job board serving private sector employers. We find that employers prefer migrant workers to locals who are identically matched to the job's requirements; these preferences are especially strong at low skill levels. We argue that migrants' higher work hours and effort help to account for employers' preferences, and present evidence that efficiency wage and intertemporal labor substitution effects might explain these hours/effort gaps.
    Keywords: temporary migration, China, hukou, undocumented migrants
    JEL: O15 R23
    Date: 2014–06
  9. By: Yuanyan Sophia Zhang; Steven Barnett
    Abstract: China weathered the global financial crisis better than most, thanks to a large and timely stimulus. This stimulus, however, was mainly in the form of off-budget infrastructure spending and thus not visible in the headline fiscal data. We construct a time series for the augmented fiscal deficit and debt—augmented to include off-budget activity—that better illustrates the counter-cyclical role of fiscal policy. The results also show that the augmented fiscal deficit and debt are both considerably higher than the headline government data suggest. Nonetheless, at around 45 percent of GDP, the augmented debt is still at a manageable level.
    Keywords: Fiscal risk;China;Government expenditures;Infrastructure;External financing;External borrowing;Budget deficits;Public debt;Debt sustainability;Fiscal policy;Fiscal Vulnerabilities, Fiscal Risks, Local Government Finance, Land Finance, Gross Financing Needs, fiscal deficit, fiscal debt, fiscal data, fiscal activity, fiscal revenue, fiscal position, fiscal reform, government deficit, quasi-fiscal activity, government budget, fiscal costs, fiscal revenues, fiscal space, government spending, fiscal expenditure, fiscal system, central government budget, tax rates, local government spending, fiscal adjustment, fiscal statistics, aggregate demand, primary deficit, intergovernmental fiscal reform, fiscal reforms, fiscal stimulus, fiscal federalism, fiscal activities, local government budget, local government expenditure, fiscal affairs, government revenue, fiscal institutions, fiscal response, fiscal affairs department, local government expenditure responsibilities, fiscal management, general government expenditure
    Date: 2014–01–14
  10. By: Bohringer, Christoph; Rutherford, Thomas F.; Tarr, David G.; Turdyeva, Natalia
    Abstract: This report investigates the environmental impacts of Russia's accession to the World Trade Organization. A 10-region, 30-sector model of the Russian economy is developed. The model is innovative and more accurate empirically in that it contains foreign direct investment, imperfectly competitive sectors, and endogenous productivity effects triggered by World Trade Organization accession along with environmental emissions data in Russia for seven pollutants that are tracked for all 30 sectors in each of the 10 regions. The decomposition analysis shows that despite the fact that World Trade Organization accession allows Russia to import better technologies and reduce pollution from the"technique effect,"on balance World Trade Organization accession alone will increase environmental pollution in Russia through a shift toward dirty industries (the"composition effect") and the expansion of output with its associated increase in pollution ("scale effect"). The paper assesses the costs of three types of environmental regulations to reduce carbon dioxide emissions by 20 percent. The paper simultaneously implements a central case scenario with each of the carbon dioxide emission reduction policy initiatives. The analysis finds that the welfare gains of World Trade Organization accession are large enough to pay for the costs of any of the three environmental abatement policies, while leaving a net welfare gain. But the political economy implications are that the non-market-based policies are more costly and the command and control policy, which is not well targeted, is very costly. Based on a constant returns to scale model, the estimated welfare gains are insufficient to finance the costs of environmental regulation.
    Keywords: Environmental Economics&Policies,Climate Change Mitigation and Green House Gases,Climate Change Economics,Economic Theory&Research,Environment and Energy Efficiency
    Date: 2014–06–01
  11. By: Wei Liao; Sampawende J.-A. Tapsoba
    Abstract: China has been moving to a more market oriented financial system, which has implications for the monetary policy environment. The paper investigates the stability of the money demand function (MDF) in light of progress in financial sector reforms that, for example, have resulted in significant financial innovation (so-called shadow banking) and more liberalized interest rates. The analysis of international experience suggests that rapid development of the financial system often leads to structural shifts in the MDF. For example, financial innovation and liberalization alter the sensitivity of money balances to income and the interest rate. For China, we find that the stable long-run relationship between money demand, output, and interest rates that existed between 2002 and 2008 disappears after 2008. This coincides with the period of rapid financial innovation, especially the growth in off-balance sheet and nonbank financial intermediation. The results suggest that usefulness of M2 as an intermediate monetary target has declined with financial innovation and reform. A result that underscores the importance of moving toward increased reliance on more price-based targets such as interest rates.
    Keywords: Monetary policy;China;Interest rates;Demand for money;Financial sector;Banks;Cross country analysis;Financial Liberalization, Financial Innovation, and Money Demand Function
    Date: 2014–05–01
  12. By: Miriam Brahim; Khaled Guesmi; FrédéricTeulon
    Abstract: This paper explores the relationship between economic indicators and inward foreign direct investment (FDI) in the Central and Eastern Europe countries. We estimate a gravity model of FDI for ten countries covering the period 1993- 2010, employing the Seemingly Unrelated Regressions Method. The results indicate that european inward investments are driven by the value of GDPs and the geographical distance. We find that institution stability, control of corruption, government effectiveness, and private sector policies are important factors driving FDI. The market size, the risk, the technological intensity, the geographic proximity and the privatization method explain a great part of bilateral FDI to the applicant countries.
    Keywords: Gravity model, FDI flows, Central and Eastern Europe countries (CEECs), Transition economies.
    Date: 2014–06–27
  13. By: International Monetary Fund. Fiscal Affairs Dept.
    Abstract: EXECUTIVE SUMMARY Most aspects of Russia’s fiscal reporting and budgeting practices are in line with good or advanced practice under the July 2013 draft of the Fiscal Transparency Code, and the disclosure and management of fiscal risks has significantly improved in recent years (Table 0.1). Specifically, over the past decade and a half: * the 1998 Budget Code and subsequent amendments have established a comprehensive legal framework for fiscal management at all levels of government; * the government began publishing cash-based in-year and year-end fiscal reports and accrual-based annual financial statements as well as fiscal statistics which consolidate Federal, regional, and municipal governments in line with international standards; * detailed and credible medium-term macroeconomic forecasts have been prepared since early 2000, and a new oil price-based fiscal rule was introduced in 2013 to encourage sustainable and counter-cyclical fiscal policymaking; * the coverage of the Federal government budget has steadily expanded and the three main remaining extra-budgetary funds are presented and approved alongside it in a timely manner; * the policy-orientation of the budget has improved thanks to a comprehensive and detailed medium-term budget framework introduced in 2008, and a new program and performance budgeting system introduced in the 2014 Budget; and * firm central controls over key sources of fiscal risks have been established, including annual limits on the issuance of debt, credit, and guarantees by the Federal government, and on borrowing by sub-national governments.2 At the same time, this evaluation highlights a number of important areas where fiscal transparency practices could be further improved: * while fiscal reports provide a relatively comprehensive picture of the Federal and sub-national government finances, they exclude the financial activity of various classes of government-controlled enterprises with net expenditure of at least 29 percent of GDP and liabilities of at least 127 percent of GDP in 2012;3 2 As a result of these successive enhancements to fiscal disclosure, between 2006 and 2012 Russia’s rating under the International Budget Partnership’s Open Budget Index has risen from a score of 47 to 74 out of 100 and from a ranking of 28th out of 59 countries to 10th out of 100 countries. 3 Figures quoted here and in the remainder of this report are based on data from the 26 largest government-controlled enterprises by liability.
    Keywords: Fiscal transparency;Fiscal policy;Budgets;Budgeting;Economic forecasting;Fiscal risk;Risk management;Reports on the Observance of Standards and Codes;Russian Federation;
    Date: 2014–05–26
  14. By: Jing You (School of Agricultural Economics and Rural Development Renmin University of China, China); Katsushi S. Imai (School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan)); Raghav Gaiha (Faculty of Management Studies, University of Delhi, India and Statistics and Studies for Development (SSD), Strategy and Knowledge Management Department, International Fund for Agricultural Development (IFAD), Italy)
    Abstract: Income and consumption growth in China has led to remarkable income poverty reduction, which is not paralleled by better nutrition. This study uses the household data in both rural and urban China over the period 1989-2009 to investigate the relationship between income growth and nutrient intake, with emphasis on rising nutrition inequality and various uncertainties facing households' livelihood in terms of rising and volatile prices of foods. A point of departure of the present study is to model (i) heterogeneity in the effect of household income and nutritional intake and (ii) the endogenoity of household income to provide a robust estimate of the effect of income on nutrition at different levels of nutritional intake. To do this, we combine recent seminal works by Canay (2011) and Lee (2007) to estimate the quantile instrumental variable (IV) panel model. We find that income growth, especially increases in crop income, can raise nutrient intake for the malnourished rural households, while business and wage income tend to increase urban households' nutrient intake and help narrow nutrition inequality. Uncertainties yield various nutritional outcomes, depending on specific food commodities.
    Keywords: Food security, Nutrition, Inequality, Instrumental quantile regression, China
    JEL: I10 I31 Q18 O53
    Date: 2014–06
  15. By: Grażyna Baldowska (Narodowy Bank Polski); Robert Leszczyński (Narodowy Bank Polski); Barbara Myszkowska (Narodowy Bank Polski)
    Abstract: The housing market (primary, secondary or rental) is very often analyzed as a whole, big market in a selected country. Our analysis focuses on the fundamental determinants of this market in 16 biggest cities in Poland, which are the capital cities of the 16 voivodeships. We also clustered the cities to show groups of cities which’s housing market behaves in a similar fashion. We confirm that the situation on housing market is driven by fundamental factors and the best way for a further econometric analysis is to divide the whole market into two groups of cities with a number of inhabitants below and over 400 thousand people.
    Keywords: housing market, house prices, primary and secondary market, rental market, fundamentals
    JEL: E21 R21 R31
    Date: 2014
  16. By: Mazurek, Jiří
    Abstract: Public universities in the Czech Republic suffer from insufficient funding for many years. One possibility for an increased funding of Czech public universities is an introduction of a low administrative fee called enrollment fee for each semester of a study. The aim of this article is to show how to find the optimal level of the enrollment fee for a given university so the total revenue of a university for enrolling students is maximal. This is done via mathematical model encompassing parameters such as maximal enrollment fee, sensitivity of enrolling students to the level of the enrollment fee, the number of enrolling students, etc. By improperly adjusted enrollment fee a university can lose millions or tens of millions crowns per year. Thus, the determination of the optimal level of the enrollment fee has high practical value, as it enables a university to maximize its combined revenue from the enrollment fee and the number of enrolling students.
    Keywords: Czech Republic; enrollment fee; mathematical modeling; optimization; total revenue, university.
    JEL: C61 I22
    Date: 2014–07–06
  17. By: Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Summary The paper compares three countries (Hungary, Poland and Romania) in terms of the number of greenfield FDI projects and of GDP by NUTS-2 sub-country regions. We discuss whether the particular regions received a smaller or larger share of projects than their share in GDP. Then we outline the regional and investment policy tools applied in each of the countries, looking at their possible impact on the location choice of investors. The investigation reveals significant regional gaps in attracting new FDI projects and a dominance of the capital cities. Regional discrepancies between NUTS-2 regions in terms of per capita GDP have become marginally smaller in recent years but were mainly unrelated to the location of new foreign investments. State aid for large investments, industrial parks and special economic zones has been among the most powerful tools directing the location choice of new FDI projects.
    Keywords: FDI, industrial location, regional policy, FDI policy
    JEL: F21 F23 R30 R38 R58
    Date: 2014–03
  18. By: Tomasz Lyziak (Narodowy Bank Polski)
    Abstract: This paper presents survey-based direct measures of inflation expectations of consumers, enterprises and financial sector analysts in Poland. It then goes on to provide the results of testing those features of inflation expectations that seem the most important from the point of view of monetary policy and its transmission mechanism. The study is the revised version of the NBP Working Paper no. 115 [ Lyziak (2012)]. It uses new measures of consumer inflation expectations and covers the updated sample (2001- 2013). Characteristics of inflation expectations in Poland are diversified across the analysed groups of economic agents. Inflation expectations of financial sector analysts and enterprises outperform those of consumers in terms of their accuracy and information content, although consumer inflation expectations are also to some extent forward-looking.
    Date: 2014
  19. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context. Growth continues to strengthen, although the recovery is not yet broad-based. External and fiscal vulnerabilities have risen: private non-debt creating capital flows have slowed, and could leave the reserve path increasingly driven by an accumulation of external public debt; central government debt—although still moderate at a projected 36 percent of GDP—has increased by about 15 percentage points since the beginning of the global financial crisis, in the context of growing broader public sector operations. Fiscal Policy. The newly re-established medium-term strategy is welcome, as it highlights the government’s policy priorities and helps shape stakeholder expectations. The targets are consistent with a gradual withdrawal of stimulus, and would produce stable baseline debt dynamics. However, should private demand recover faster than expected, frontloading the consolidation would stave off the emergence of imbalances and would boost policy credibility. Ensuring adequate fiscal space for priority infrastructure remains key. Monetary and Financial Policies. Looser monetary policy in the second half of 2013 has not resulted in the hoped for pickup in private credit growth. Nonetheless, the strong recovery in H1 2013, high bank liquidity, and the decline in reserves (albeit not indicative of pressures on the peg) suggest an end to the easing cycle would be in order. External Position. Capacity to service outstanding external debt obligations, including to the IMF, remains adequate. Despite still weak net FDI flows, increased activity in large foreign-owned companies is contributing to stronger exports. However, backward linkages will likely develop only slowly. In the absence of domestic spillovers, the structural improvement in the trade deficit will be gradual and growth could be uneven.
    Keywords: Post-program monitoring;Fiscal policy;Monetary policy;Debt sustainability analysis;Staff Reports;Press releases;former Yugoslav Republic of Macedonia (FYR Macedonia);
    Date: 2014–02–26
  20. By: Ewa Stanisławska (Narodowy Bank Polski)
    Abstract: The paper employs on individual bank data with aim to analyse interest rate pass-through from money market rates to banks’ deposits and lending rates. In the first step, the speed and completeness of interest rate adjustment is assessed. As the sample covers period prior to and after the outburst of the financial crisis, some comparisons of interest rate transmission process in these periods are made. In the second step, the influence of individual banks characteristics, like size, strength of deposit base, quality of credit portfolio, etc., on the features of interest rate transmission is examined. It seems that t heir impact i s not strong, as they affect rather the speed of adjustment than its scale in the long term.
    Keywords: interest rates pass-through, monetary policy transmission mechanism, interest rate channel
    JEL: E52 E43 G21
    Date: 2014
  21. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Stand-by Arrangement (SBA): A 24-month SBA with access of SDR 1,751.34 million (about €1.98 billion, 170 percent of quota) was approved by the Executive Board on September 27, 2013. The second and third tranches of SDR 194.7 million each (cumulative SDR 584.1 million) would be made available upon completion of the first and second reviews. Balance-of-payments assistance of €2 billion is also available from the European Union (EU). The authorities treat both arrangements as precautionary. Program status: Four of five end-December 2013 quantitative performance criteria and four of five indicative targets were met. The performance criterion on the general government overall balance was missed by a small margin. The 2014 budget provides for gradual fiscal adjustment consistent with EU requirements, while allowing for greater absorption of EU funds. On the structural agenda, a landmark initial public offering of government shares in the state-owned natural gas producer (Romgaz) was concluded and the energy regulator increased energy prices as planned. The privatization of the state- owned freight railway company (Marfa), however, failed. In addition, the end-December indicative target on state-owned enterprise (SOE) arrears was missed. Program modalities: One prior action was established that requires implementation of specific measures to reduce significantly SOE arrears. In addition, five new structural benchmarks and a new indicative target on Marfa’s arrears are proposed along with modifications of three other structural benchmarks. Staff views: Staff recommends completion of the first and second reviews and supports the authorities’ request for a waiver of nonobservance of a performance criterion, modifications to program conditionality, and rephasing of availability dates. Sound macroeconomic policies have shielded Romania from most of the recent volatility in emerging financial markets. Political risks to program implementation are rising as tension between the government and the president mounts in advance of elections later this year.
    Keywords: Stand-by arrangement reviews;Economic growth;Fiscal policy;Fiscal reforms;Monetary policy;Staff Reports;Press releases;Performance criteria modifications;Phasing of purchases;Performance criteria waivers;Romania;
    Date: 2014–04–01
  22. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Background: After its resilience during the global financial crisis, the Polish economy slowed substantially in 2012–13 as headwinds from the euro area and waning confidence added to the drag from fiscal consolidation. But economic activity is starting to recover, helped by strong fundamentals, able policy management, and the insurance provided by the Flexible Credit Line (FCL) arrangement. Outlook: Economic growth is expected to recover gradually on the back of improving domestic demand and higher growth in core euro countries. But the economy is still subject to substantial external risks as Poland is highly integrated with Europe through trade and financial channels, as well as with global financial markets. Policies: In response to the economic downturn, policy interest rates were cut substantially, while automatic fiscal stabilizers were allowed to operate to support the economy. Going forward, the fiscal deficit is expected to decline in 2014 and a new, permanent, fiscal rule should help anchor public finances. The authorities have continued to take steps to strengthen the financial sector, including through work to establish macroprudential and bank resolution frameworks. Flexible Credit Line (FCL): On January 18, 2013, the Executive Board approved a 24-month arrangement with Poland under the FCL in the amount of SDR 22 billion (equivalent to 1303 percent of quota). The authorities continue to treat the arrangement as precautionary. Qualification: In staff’s view, Poland continues to meet the qualification criteria for access to FCL resources specified under the Board decision on FCL arrangements (Decision No. 14283-(09/29), adopted on March 24, 2009). Staff therefore recommends completion of the review under this FCL arrangement.
    Keywords: Flexible Credit Line;Economic recovery;Economic growth;Fiscal policy;Monetary policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Poland;public debt, external debt, current account, current account deficit, short-term debt, balance of payments, external financing, total external debt, external shocks, external debt sustainability, current account balance, debt dynamics, debt ratio, public sector debt, public finances, debt stock, currency debt, domestic currency, foreign currency debt, public debt management, government debt, treasury bonds, long-term debt, central bank, external debt service, reserve assets, debt ratios, net external liabilities, official creditors, currency risks, currency composition, domestic debt market, public debt service, debt burden, debt management strategy, sovereign debt, private credit
    Date: 2014–01–13
  23. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: KEY ISSUES Context and recent developments. Performance under the 2010–13 program, which was supported by arrangements under the Extended Fund Facility and Extended Credit Facility, was sound, with growth restored, large fiscal and external imbalances reduced, and buffers rebuilt. However, challenges remain, particularly in further reducing vulnerabilities and strengthening medium-term growth dynamics. Growth and inflation have remained volatile—in 2013, growth slowed significantly and inflation rose well above the CBA’s target range. The external current account deficit and dollarization continue to be high, keeping the economy vulnerable to shocks. Poverty and unemployment also remain high, and the transition to an alternative to the pre- crisis, construction-led growth model—involving a more open, competitive, and globally- and regionally-integrated economy—has been slow. Program objectives. In light of these challenges, the Armenian authorities have requested a new 38-month arrangement under the Extended Fund Facility, with access equivalent to SDR 82.21 million (89.4 percent of quota). Key objectives of the new program are to consolidate stability and buffers against possible external shocks and to support growth through further reforms in the transition towards a dynamic emerging market economy. Program policies. Fiscal policy will support the growth recovery in 2014 by providing a modest stimulus, before moving to a gradual consolidation stance in 2015–17. This will place public debt on a declining path during the program period. Revenue measures will support the consolidation and also create room for addressing social and investment needs. Monetary and exchange rate policies will be guided by the authorities’ framework of inflation targeting and exchange rate flexibility, with program policies focusing on continued improvements in monetary operations, communications, and modeling. Financial sector policies will target implementation of remaining recommendations of the 2012 FSAP Update, which aim to promote resilience to shocks and greater financial deepening. Structural reforms will support medium-term growth by targeting improvements in the business climate, strengthening institutions, improving connectivity and competition, creating a stronger environment for private and foreign direct investment, and tackling key risks, especially in the energy sector. Staff views. Staff supports the authorities’ request for an Fund-supported program. The LOI/MEFP provides a strong set of policies to pursue the objectives of the program. While the program is not without risks, staff assesses Armenia’s repayment capacity to be robust, with the fiscal consolidation and growth-supporting reforms embedded in the program reinforcing this assessment. If the program’s policies are implemented, and barring any major shocks, the program should be able to achieve exit from Fund support, with Armenia sustaining market access at the end of the program period.
    Keywords: Extended Fund Facility;Economic growth;Fiscal policy;Government expenditures;Poverty reduction strategy;Fiscal reforms;Monetary policy;Inflation targeting;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Armenia;
    Date: 2014–03–31
  24. By: Cuong Le Van (Centre d'Economie de la Sorbonne - Paris School of Economics, IPAG and VCREME); Anh-Ngoc Nguyen (Development and Policies Research Center (DEPOCEN) - Vietnam); Ngoc-Minh Nguyen (Development and Policies Research Center (DEPOCEN) - Vietnam)
    Abstract: We study the impact of social capital in both simple theoretical and empirical model with the main assumption is the price of physical capital is a decreasing function of social capital. In our theoretical model, there exists a critical value such that firm will not invest in social capital if its saving is lower than the critical value and otherwise. Moreover, the output depends positively and non-linearly on the social capital. Our empirical model that captures the impact of physical capital, human capital, and social capital using the database from Survey of Small and Medium Scale Manufacturing Enterprises (SMEs) in Vietnam 2011, confirms the conclusions of the theoretical model.
    Keywords: Social Capital, Optimal Growth.
    JEL: Z1 E2 O00
    Date: 2014–02
  25. By: Adam P. Balcerzak (Nicolaus Copernicus University)
    Abstract: The global financial crisis of the years 2008-2010 led to a situation, where long-term mistakes and negligence in the area of fiscal policy, on the one hand may threaten the financial stability of chosen economies of the European Union, as it is exemplified by the threat of bankruptcy of Greece, but may be also a direct threat to the stability of the euro area, and thus it can destabilize the entire European Union. In this context, the objective of this paper is to assess the fiscal burden in Poland compared to other members of the EU. Due to the fact that the level and severity of the fiscal burden in the country can be treated as a multidimensional phenomenon in the analysis as a research tool taxonomy instruments – in that case zero unitarization method – has been used. These tools has enabled the creation of a synthetic measure of development of the researched phenomenon and allowed to prepare the ranking of EU countries presenting the scope of their fiscal burden in the years 2007-2011. This allowed to capture one year before internationalization of the U.S. subprime crisis, and covered the period of the global financial crisis.
    Keywords: fiscal policy, fiscal burden, macroeconomics, financial crisis
    Date: 2013–02
  26. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Stand-By Arrangement (SBA): The Board approved Bosnia and Herzegovina’s (BiH) request for a two-year SBA with access of SDR 338.2 million (200 percent of quota) on September 26, 2012. The fourth review was completed on October 28, 2013 and SDR 211.375 million (125 percent of quota) has been disbursed so far. SDR 42.275 million (25 percent of quota) would become available after completion of the fifth review. Program performance: Policy implementation remains strong despite a challenging environment. All end-September 2013 performance criteria (PCs) and indicative targets were met. The fifth review was delayed to allow for the adoption of government budgets for 2014 and due to the dismissal—later suspended—of the Federation finance minister that temporarily interrupted the ministry’s operations. Thus, the authorities are requesting waivers of applicability of the now controlling end-December 2013 PCs on the budget balances and accumulation of domestic arrears for the Institutions of BiH and the entity central governments for which data are not yet available and for which there is no evidence they were not observed. The 2014 budgets aim to preserve the gains made in fiscal consolidation. Despite some delays, sustained progress was made in meeting structural benchmarks, including the adoption of a new law on budgets in the Federation. Outlook and risks: A modest recovery in economic activity continues, supported by strong exports. Growth is estimated to have reached close to 1 percent in 2013 and is projected to pick up further in 2014 in line with developments in Europe. The banking sector is broadly stable but remains burdened by rising non-performing loans. Considerable downside risks loom ahead, including those stemming from general elections later this year. SBA: The authorities are also requesting a nine-month extension and augmentation of the arrangement. Access would be increased by SDR 135.28 million (80 percent of quota) to meet additional financing needs that arise mainly in late 2014. Staff’s view: Given the authorities’ strong track record of policy implementation and their commitment to maintain sound economic policies, staff supports the request for waivers of applicability and recommends the completion of the fifth review. Staff also supports the request for an extension and augmentation of the arrangement, as it would address the additional financing needs and continue to provide an anchor for economic policies during the period of the elections and the formation of the next governments.
    Keywords: Stand-by arrangement reviews;Economic growth;Fiscal policy;Budgets;Unemployment;Fiscal reforms;Banking sector;Economic indicators;Staff Reports;Press releases;Extended arrangement requests;Performance criteria waivers;Bosnia and Herzegovina;
    Date: 2014–02–11
  27. By: Natan P. Epstein; Rafael Portillo
    Abstract: This paper analyzes the monetary policy framework in Kazakhstan. The authorities have been successful in containing inflation in the context of a managed exchange rate regime. Over the past two years, the central bank has taken steps to enhance its ability to regulate liquidity in the financial system. However, the current policy interest rate does not properly signal the stance of policy, reflected in a weak transmission from the policy rate to money market interest rates. With the use of a stylized model, the paper studies the macro determinants of money market interest rates under the current framework, and illustrates both the benefits and challenges of active interest rate policy. The model shows that limited use of instruments to steer short-term interest rates weakens the framework’s ability to counteract shocks. Finally, the paper explores the implications of varying degrees of exchange rate flexibility for interest rate policy and open market operations.
    Keywords: Monetary policy;Kazakhstan;Exchange rate regimes;Interest rates;Money markets;External shocks;Devaluation;Econometric models;Monetary Policy, Interest Rate, Money Market, Exchange Rate.
    Date: 2014–06–13
  28. By: Christian Ebeke; Yinqiu Lu
    Abstract: The paper shows that foreign holdings of local currency government bonds in emerging market countries (EMs) have reduced bond yields but have somewhat increased yield volatility in the post-Lehman period. Econometric analyses conducted from a sample of 12 EMs demonstrate that these results are robust and causal. We use an identification strategy exploiting the geography-based measure of EMs financial remoteness vis-à-vis major offshore financial centers as an instrumental variable for the foreign holdings variable.The results also show that, in countries with weak fiscal and external positions, foreign holdings are greatly associated with increased yield volatility. A case study using Poland data elaborates on the cross country findings.
    Keywords: Foreign investment;Bonds;Emerging markets;Poland;Cross country analysis;Economic models;Foreign Holdings; Domestic Bonds; Yields; and Volatility
    Date: 2014–02–12
  29. By: Bratsberg, Bernt (Ragnar Frisch Centre for Economic Research); Raaum, Oddbjørn (Ragnar Frisch Centre for Economic Research); Røed, Knut (Ragnar Frisch Centre for Economic Research)
    Abstract: Based on individual longitudinal data, we examine the evolution of employment and earnings of post‐EU accession Eastern European labour immigrants to Norway for a period of up to eight years after entry. We find that the migrants were particularly vulnerable to the negative labour demand shock generated by the financial crisis. During the winter months of 2008/09, the fraction of immigrant men claiming unemployment insurance benefits rose from below 2 to 14 per cent. Some of this increase turned out to be persistent, and unemployment remained considerably higher among immigrants than natives even three years after the crisis. Although we find that negative labour demand shocks raise the probability of return migration, the majority of the labour migrants directly affected by the downturn stayed in Norway and claimed unemployment insurance benefits.
    Keywords: migration, assimilation, social insurance
    JEL: F22 H55 J22
    Date: 2014–06
  30. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context: The current account is worsening, coinciding with peak debt service, limited market access, and low reserves. Although the authorities have taken ad hoc measures to curb acute exchange rate pressures during the summer, a stronger policy response is urgently needed to reduce external imbalances and mitigate risks. Challenges: Facilitating external adjustment through a consistent set of policies is the key short-term priority. The medium-term challenge remains to increase efficiency and competitiveness through deep structural reform, with strong measures taken up front to enhance credibility. Policy recommendations: No further wage increases in 2013–14, to curb demand and regain competitiveness; Sharply reduce directed lending, to limit credit growth and contingent liabilities, and reduce external imbalances; Substantially scale back foreign exchange market intervention and tighten monetary policy to facilitate exchange rate and balance of payments adjustment; Adopt comprehensive and ambitious structural reforms to raise sustainable growth
    Keywords: Post-program monitoring;Fiscal policy;Wage increases;Fiscal reforms;Monetary policy;Banking sector;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Belarus;external debt, current account, public debt, external financing, balance of payments, current account balance, debt ratio, central bank, short-term debt, domestic currency, debt dynamics, debt stock, government debt, current account deficit, debt ratios, total external debt, repayments, domestic debt, external debt sustainability, long-term debt, repurchases, public sector debt, external debt service, domestic financing, external borrowing, central banks, repayment capacity, foreign loans, currency composition, domestic borrowing, bilateral agreements, excessive volatility, debt burden, external payments, currency debt, debt servicing, budget balance, currency risk, balance sheet effects
    Date: 2014–01–24
  31. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: EXECUTIVE SUMMARY Hong Kong SAR’s (HKSAR) financial sector is one of the largest and most developed in the world, ranking number one in the World Economic Forum Financial Development Index. The banking system, with assets of US$2 trillion and equivalent to 705 percent of GDP, is highly capitalized, profitable, and liquid. The securities markets are deep, liquid, and efficient, with total stock market capitalization of 1,000 percent of GDP. The insurance sector has high penetration (now ranked the second in Asia after Japan), and is well capitalized. The sector is very well regulated, with the capacity to withstand a diversity of shocks. While the financial sector faced significant stress during the early stages of the 2008 global financial crisis, market confidence recovered quickly, aided by the decisive measures adopted by the Hong Kong authorities to mitigate its impact. The sector, however, faces major risks, which puts a significant premium on effective liquidity management, macroprudential oversight and microprudential supervision. The anticipated exit from unconventional monetary policy in the United States could increase capital market volatility and reduce system-wide liquidity. A correction of property prices, which now stand at historical highs, poses risks for both borrowers and banks. The increasing economic and financial integration between HKSAR and Mainland China offers considerable expansion opportunities, but, at the same time, generates significant spillover risks, especially if a significant financial disruption or economic slowdown were experienced. Stress tests suggest that banks are well positioned to absorb a significant realization of risks. Banks’ aggregate capitalization would remain well above the Basel III’s minimum capital requirement, and the banking sector (including foreign branches) has sufficient liquidity to withstand large deposit and wholesale funding withdrawals. At the same time, the tests highlight that a few smaller banks might be slightly more vulnerable under a severe economic scenario, and, reflecting the nature of their businesses, foreign branches are relatively more sensitive to withdrawals of wholesale funding. This underscores the need for continued vigilance in these areas. The authorities have actively deployed macroprudential policies to mitigate systemic risks. In particular, in the face of a doubling of house prices, the Hong Kong Monetary Authority (HKMA) introduced tighter limits on loan-to-value (LTV) and debt-servicing (DSR) ratios. Going forward, it will be important that the authorities strengthen their capacity for systemic risk analysis at both the Securities and Futures Commission (SFC) and Insurance Authority (IA) to complement the analysis undertaken by the HKMA. This would help ensure that cross-sectoral interconnections are adequately captured when considering systemic risks.
    Keywords: Financial system stability assessment;Financial sector;Financial risk;Banks;Spillovers;Bank resolution;Bank supervision;Stress testing;Macroprudential Policy;Hong Kong SAR;
    Date: 2014–05–22
  32. By: Iana Paliova; Tonny Lybek
    Abstract: This paper focuses on EU structural and cohesion funds assistance to Bulgaria during the 2007–13 program period. Initial weaknesses resulted in a low absorption rate, which was mitigated by increasing advance payments; applying electronic application and reporting procedures; simplifying and unifying tender processes; and strengthening the role of international financial institutions and banks in project preparation, evaluation and monitoring. The possible impact on growth and potential output is briefly discussed, while the risks of improper absorption are acknowledged. Valuable lessons have been learned, but it is recommended that additional steps be taken for the next program period 2014–20.
    Keywords: Financial assistance;Bulgaria;Absorptive capacity;Public investment;Government expenditures;European Union;Bulgaria, EU structural and cohesion funds, and potential growth.
    Date: 2014–02–06
  33. By: International Monetary Fund. Fiscal Affairs Dept.
    Abstract: EXECUTIVE SUMMARY This report presents the results of applying the Revenue Administration Gap Analysis Program VAT gap estimation methodology to Estonia for the period 2007–12. The methodology employs a top-down approach for estimating the potential VAT base, using statistical data on value-added generated in each sector. There are two main components to this methodology for estimating the VAT compliance gap: 1) estimate the potential net VAT collections for a given period, and 2) determine the accrued net VAT collections for that period. The difference between the two values is the compliance gap. The Estonian Tax and Customs Board have been estimating their VAT and other tax compliance gaps since 2004. These estimates and associated compliance and risk analysis, all produced by the ETCB Intelligence Department, are used to set strategic priorities and identify risks and potential targets for tactical operations. Between 2009 and 2012, VAT receipts failed to keep pace with nominal GDP and final consumption growth, due to a growing compliance gap. This is observed in VAT compliance gap estimates produced by RA-GAP, Center for Social and Economic Research (CASE),1 and the ETCB. In particular, over the period 2008–11, the VAT compliance gap almost doubled and losses increased by over €150 million (Figure 1). 1 “Study to quantify and analyse the VAT Gap in the EU-27 Member States†Final Report TAXUD/2012/DE/316 for the European Commission, TAXUD, by CASE – Center for Social and Economic Research (Project leader) and CPB s Bureau for Economic Policy Analysis (Consortium leader).
    Keywords: Value added tax;Tax revenues;Economic models;Technical Assistance;Estonia;
    Date: 2014–05–23
  34. By: Petreski, Marjan; Mojsoska-Blazevski, Nikica; Petreski, Blagica
    Abstract: The objective of this research is to understand if large gender employment and participation gaps in Macedonia can shed some light on the gender wage gap. A large contingent of inactive women in Macedonia including long-term unemployed due to the transition process, female remittance receivers from the male migrant, unpaid family workers in agriculture and so on, is outside employment, but is not necessarily having the worst labour-market characteristics. In addition, both gender wage gap and participation gap enlarge as education decreases, revealing the importance of non-random selection of women into employment. Though, the standard Heckman-type correction of the selectivity bias suggests that non-random selection exists, but the resulting wage gap remains at the same level even when selection has been considered. Instead, we perform repeated wage imputations for those not in work, by simply making assumptions on the position of the imputed wage observation with respect to the median. Then, we assess the impact of selection into employment by comparing estimated wage gaps on the base sample versus on an imputed sample. The main result is that selection explains most of the gender wage gap in the primary-education group (75%), followed by the secondary-education group (55%). In the tertiary group, the small initial gap vanishes once selection considered. This suggests that indeed non-working women are not those with the worst labour-market characteristics. Results suggest that gender wage discrimination in Macedonia is actually between 5.4% and 9.8% and does not exist for the highly-educated women. The inability of the Heckman-type correction to document a role for selection in explaining the gender wage gap may be due to the criticisms to the exclusion restrictions and the large amount of missing wages.
    Keywords: gender wage gap, gender participation gap, selection bias, repeated imputations
    JEL: E24 J16 J31
    Date: 2014

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