|
on Financial Development and Growth |
| By: | Jasper de Jong; Marien Ferdinandusse; Josip Funda |
| Abstract: | The global financial crisis and the euro area sovereign debt crisis that followed induced a rapid deterioration in the fiscal positions of countries across the globe. In the ensuing fiscal adjustment process, public investments were severely reduced in many countries. How harmful is this for growth perspectives? Our main objective is to find out whether the importance of public capital for long run output growth has changed in recent years. We also aim to provide information on the relevance of international spillovers of public capital. To these ends, we expand time series on public capital stocks for 20 OECD countries as constructed by Kamps (2006) and estimate country-specific recursive VARs. Results show that the effect of public capital shocks on economic growth has not increased in general, although results differ widely between countries. This suggests that the current level of public investments generally does not pose an immediate threat to potential output. Of course, this could change if low investment levels are sustained for a long time. We furthermore provide some tentative evidence of positive spillovers of public capital shocks between European countries. |
| Keywords: | Public capital stock; economic growth,; spillovers |
| JEL: | E22 E62 H54 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:542&r=fdg |
| By: | Georg Graetz; Guy Michaels |
| Abstract: | Since the early 1990s, recoveries from recessions in the US have been plagued by weak employment growth. One possible explanation for these “jobless” recoveries is rooted in technological change: middle-skill jobs, often involving routine tasks, are lost during recessions, and the displaced workers take time to transition into other jobs (Jaimovich and Siu, 2014). But technological replacement of middle-skill workers is not unique to the US—it also takes place in other developed countries (Goos, Manning, and Salomons, 2014). So if jobless recoveries in the US are due to technology, we might expect to also see them elsewhere in the developed world. We test this possibility using data on recoveries from 71 recessions in 28 industries and 17 countries from 1970-2011. We find that though GDP recovered more slowly after recent recessions, employment did not. Industries that used more routine tasks, and those more exposed to robotization, did not recently experience slower employment recoveries. Finally, middle-skill employment did not recover more slowly after recent recessions, and this pattern was no different in routine-intensive industries. Taken together, this evidence suggests that technology is not causing jobless recoveries in developed countries outside the US. |
| Keywords: | job polarization; jobless recoveries; routine-biased technological change; robots |
| JEL: | E32 J23 O33 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:69043&r=fdg |
| By: | Nicholas Oulton (Centre for Macroeconomics (CFM); National Institute of Economic and Social Research (NIESR)) |
| Abstract: | I analyse TFP growth at the sectoral and aggregate level, using data for 10 industry groups covering the market sector for 18 countries over the period 1970-2007 drawn from the EU KLEMS dataset. TFP growth displays persistence at the aggregate level but not at the industry level, suggesting industry outputs are measured with error. In all countries resources have been shifting away from industries with high TFP growth towards industries with low TFP growth. Nevertheless I find that structural change (as measured by changes in value added shares) has favoured growth in most countries. Errors in measuring capital or in measuring the elasticity of output with respect to capital are unlikely to substantially reduce the role of TFP in explaining growth. The pattern of growth in these 18 countries is more consistent with an underlying two-sector model than with the one-sector (Solow) model. Standard theory suggests that TFP growth induces capital accumulation, at least in the long run. This is not the case with the raw EU KLEMS data used here. But standard theory finds some support when the data are smoothed to remove cyclical effects. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1706&r=fdg |
| By: | Priftis, Romanos; Zimic, Srecko |
| Abstract: | We find that debt-financed government spending multipliers vary considerably depending on the location of the debt holder. In a sample of 59 countries we find that government spending multipliers are larger when government purchases are financed by issuing debt to foreign investors (non-residents), compared to the case when government purchases are financed by issuing debt to home investors (residents). In a theoretical model we show that the location of the government debt holder produces these differential responses through the extent that private investment is crowded out in each case. Increasing international capital mobility of the resident private sector decreases the difference between the two types of financing, a prediction, which is also confirmed by the data. The share of rule-of-thumb workers, as well as the strength of the public good in the utility function play a key role in generating model-based fiscal multipliers, which are quantitatively comparable with those of the data. |
| Keywords: | Debt financing, Fiscal multipliers, Government spending, Magnitude restrictions, Small open economy |
| JEL: | E2 F41 G15 H6 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2017/01&r=fdg |
| By: | Grant, Everett (Federal Reserve Bank of Dallas) |
| Abstract: | I identify new patterns in countries' economic performance over the 2007-2014 period based on proximity through distance, trade, and finance to the US subprime mortgage and Eurozone debt crisis areas. To understand the causes of the cross-country variation, I develop an open economy model with two transmission channels that can be shocked separately: international trade and finance. The model is the first to include a government and heterogeneous firms that can default independently of one another and has a novel endogenous cost of sovereign default. I calibrate the model to the average experiences of countries near to and far from the crisis areas. Using these calibrations, disturbances on the order of those observed during the late 2000s are separately applied to each channel to study transmission. The results suggest credit disruption as the primary contagion driver, rather than the trade channel. Given the substantial degree of financial contagion, I run a series of counterfactuals studying the efficacy of capital controls and find that they would be a useful tool for preventing similarly severe contagion in the future, so long as there is not capital immobility to the degree that the local sovereign can default without suffering capital flight. |
| JEL: | E32 F40 F41 F44 H63 |
| Date: | 2016–08–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:280&r=fdg |
| By: | André Diniz (Sao Paulo School of Economics - FGV); Bernardo Guimaraes (Sao Paulo School of Economics - FGV; Centre for Macroeconomics (CFM)) |
| Abstract: | The deleterious effect of debt restructuring on banks' balance sheets and, consequently, on the economy as a whole has been a key policy issue. This paper studies how post-default fiscal policy interacts with this sovereign-bank loop and shape the response of a model economy. Calibration of the model matches characteristics of the Greek economy at the time of the Bond Exchange. Debt restructuring in place of higher lump-sum taxation or non-productive government spending harms the economy even if no other cost of default is considered. However, the sovereign-debt loop is less costly to the economy than increases in labour or capital taxes to service debt. Even so, if fiscal policy is too responsive, a crowding-out effect inhibits the recovery of capital markets, hence a more conservative fiscal stance is desirable. Thus how diabolic the post-default sovereign-bank loop is depends to a large extent on the way fiscal policy responds. |
| Keywords: | Financial frictions, Fiscal policy, Soverign default, Soverign-bank loop |
| JEL: | E32 E62 F34 G01 H63 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1705&r=fdg |
| By: | Christian Hepenstrick and Rolf Scheufele Alain Galli |
| Abstract: | We compare several methods for monitoring short-term economic developments in Switzerland. Based on a large mixed-frequency data set, the following approaches are presented and discussed: factor-based information combination approaches (including factor model versions based on the Kalman filter/smoother, a principal component based version and the three-pass regression filter), a model combination approach resting on MIDAS regression models and a model selection approach using a specific-to-general algorithm. In an out-of-sample GDP forecasting exercise, we show that the considered approaches clearly beat relevant benchmarks such as univariate time-series models and models that work with one or a small number of indicators. This suggests that a large data set is an important ingredient for successful real-time monitoring of the Swiss economy. The models using a large data set particularly outperform others during and after the Great Recession. Forecast pooling of the most-promising methods turns out to be the best option for obtaining a reliable nowcast for the Swiss economy. |
| Keywords: | Mixed frequency, GDP, nowcasting, forecasting, Switzerland |
| JEL: | C32 C53 E37 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2017-02&r=fdg |