Economic Adjustment Research Articles

Macroeconomic dynamics under bounded rationality: on the impact of consumers’ forecast heuristics

This paper considers various types of forecast heuristics to examine the effects of boundedly rational agents on macroeconomic dynamics. Given the baseline New Keynesian model, we seek to find the expectation formation process that is most suitable in describing economic adjustments over the business cycle. In particular, impulse response analysis is used to compare the performances of the macroeconomic model under bounded rationality and under rational expectations. The results show that the fluctuations in consumer confidence mainly explain the degree of persistence in consumption. We conclude that a model under bounded rationality with a heuristic-induced switching process can qualitatively provide a good fit to the data that is equivalent to a model under rational expectations.

Monetary policy and anxious presidents: The effects of monetary shocks on presidential job approval

AbstractUsing high‐frequency identification, I show that the Federal Reserve significantly influences its political environment. A 50‐bp exogenous contractionary monetary shock is associated with a decline in the U.S. president's job approval by up to five percentage points in the subsequent 12 to 24 months. This loss exceeds the victory margin in six out of the eight latest elections. My findings also suggest that presidents who are in the second half of their terms are particularly vulnerable to monetary shocks. Such vulnerability is largely explained by the evolving attitudes toward key macroeconomic factors like unemployment and inflation over the presidential life cycle.Related ArticlesCho, Sungdai, and Garry Young. 2008. “The Asymmetric Impact of Inflation on Presidential Approval.” Politics & Policy 30(3): 401–30. https://doi.org/10.1111/j.1747‐1346.2002.tb00128.xHazakis, Konstantinos J. 2015. “The Political Economy of Economic Adjustment Programs in the Eurozone: A Detailed Policy Analysis.” Politics & Policy 43(6): 822–54. https://doi.org/10.1111/polp.12141Pulatov, Abdullo, and Ahmad Hassan Ahmad. 2021. “Political Business Cycles in Post‐Communist European Countries.” Politics & Policy 49(5): 1248–69. https://doi.org/10.1111/polp.12427

Small hydropower plants in Western Balkan countries: status, controversies and a proposed model for decision making

BackgroundAs the countries of the Western Balkans (WB) have committed to sustainable development, the process of regulatory and economic adjustment is underway. As part of the aforementioned fact, the WB countries have commenced exploitation of energy from renewable sources, among which hydropower is the most important. The main objective of the study is to analyse the status of renewable energy transition in the WB region, focusing on the construction and exploitation of small hydropower plants (SHPPs), as well as a proposal for an original model for decision making in this field, based on a multidimensional decision-making space. Namely, in most cases, there is resistance to the construction of SHPPs in the WB territory, as well as divided opinion among investors, companies, environmental movements, academia, and citizens on this issue. This shows that the entire decision-making process has to be reviewed and re-designed.ResultsThe results of the study show that the construction of SHPPs caused damage to environmentally protected areas, living conditions of local communities, touristic and agricultural potential. All of the foregoing matters have led to mass protests by citizens and a high degree of mistrust so that the future of SHPPs in the WB is extremely uncertain. The assessment of the acceptability of existing SHPPs through the proposed model showed that 74% of SHPPs cannot be considered acceptable from the aspect of the location where they were built, and from the aspect of the impact on the quality of life of the local population. Accordingly, this paper provides suggestions for much-needed improvements.ConclusionsThe construction of SHPPs is causing numerous controversies, opposition, and resistance. To find the right solution, and contribute to sustainable energy and economic development, it is necessary to develop a fully transparent and objective policy system in this field, and to use contemporary models for decision making with emphasis on the involvement local communities in the decision-making process.

Development of information and consulting services in the system of information relations in the agricultural industry of the Kyrgyz Republic

Information relations in agricultural sector of the Kyrgyz Republic (KR) needs further development based on the digitalization processes taking place in the society. Spread of COVID-19 pandemic introduced a number of economic adjustments to the country’s digital interactions, which significantly influenced the development of information and consulting services in the industry. Cooperation of the Kyrgyz Republic with the states of the Eurasian Economic Union presupposes close interaction on issues of regulation of the common agricultural market and development of international trade in the field of agriculture, which also affects digitalization of the country’s economy. The paper presents the results of methodological study on development of information and consulting services in the agricultural sector, analysis of organizational structure of the country’s agriculture according to categories of farms, and entities requiring these services have been determined. Recommendations are proposed for digitalization of the industry, taking into account development of information and consulting services, based on the current state of agricultural production, as son as the main consumers of information services turn to be peasant (farmer) households as the main producers of agricultural products. Building a system of information and consulting services will contribute to development of its own market for agricultural products, processing information from agricultural producers and consumers of agricultural products, creating profitable trade relations and marketing of agricultural products.

Analysis on the Adjustment of Marine Economic Industrial Structure Based on the Least Square Regression Model

In order to intuitively analyze and clearly understand the effect of industrial structure adjustment of the marine economy in recent years in China, modeling and empirical research on industrial structure adjustment of the marine economy are carried out. Three comparisons of marine economic industrial structure and per capita output value coefficient of the marine industry are selected as scientific measurement indexes, the ratio of regional entropy to the output value of marine scientific research management service industry is selected as the height analysis index, and the econometric model is constructed according to the influence of the scientificity and advancement of marine economic industrial structure on marine economic GDP. Based on the empirical analysis of the relevant economic data of China’s marine industry from 2008 to 2018, the model variable stationarity test and least squares regression analysis showed that the fitting degree of the model was good and significant; with every 1% increase in the scientificity and height of marine economic industrial structure adjustment, the marine economy increased by 1.88% and 2.80%, respectively. The development of marine science and technology can promote the rise of the marine economy. According to the model, the adjustment strategy of the marine economy industrial structure is made to further promote the development of the marine economy.

Unequal gains, prolonged pain: A model of protectionist overshooting and escalation

We develop a model of democratic responses to macroeconomic shocks, and show that when economic adjustment is slower than potential political change, economic shocks can trigger populist surges. Applied to trade policy, we show that unexpected changes in world prices or skill biased technological change can induce a surge in economic nationalism and trade protection. Over time, the initial protectionist surge will gradually diminish if and only if educational gains enable less-skilled workers to catch up with the overall economy. The more unequal the initial distribution of the returns to human capital, the greater and longer-lasting the protectionist backlash will be: unequal gains, prolonged pain. Key data markers suggested by the model exhibit patterns consistent with recent surges in protectionism in the US and UK.

From red spirit to underperforming pyramids and coercive institutions: Michael Polanyi against economic planning

ABSTRACT This paper examines the evolution of Michael Polanyi’s critique of economic planning. It portrays how the focal point of his critique shifted from addressing the ‘spirit,’ ‘social consciousness,’ and ‘public emotion’ of the people supporting planned economies to addressing the administrative ‘unmanageability’ and the logical impossibility of economic planning. Polanyi developed thought experiments of imaginary economies, contrasted the ‘pyramid of authority’ with the polygons of liberty, and explained organic (spontaneous order) and inorganic (corporate order) ways of adjusting economic relations. He attempted to relax the Leviathan of Soviet economics, and drew the conclusion that mathematics is not sufficient in itself to properly address the economy. Eventually, Polanyi developed an institutionalist approach in order to be able to address both the variability of market economies and the failures of socialist ‘super-planners’ who claimed to eliminate the drift of individual economic adjustments.

Financial stability in response to climate change in a northern temperate economy

Climate change will have considerable impact on the global economy. Estimates of the economic damages due to climate change have focused on the effect of average temperature, but not the effect of other important climate variables. Related research has not explored the sub-annual economic cycles which may be impacted by climate volatility. To address these deficits, we propose a flexible, non-linear framework which includes a wide range of climate variables to estimate changes in GDP and project sub-annual economic cycle adjustments (period, amplitude, trough depth). We find that the inclusion of a more robust set of climate variables improves model performance by over 20%. Importantly, the improved model predicts an increase in GDP rather than a decrease when only temperature is considered. We also find that climate influences the sub-annual economics of all but one province in Canada. Highest stressed were the Prairie and Atlantic regions. Least stressed was the Southeastern region. Our study advances understanding of the nuances in the relationship between climate change and economic output in Canada. It also provides a method that can be applied to related economies globally to target adaptation and resilience management.

Climate policies after Paris: Pledge, Trade and Recycle: Insights from the 36th Energy Modeling Forum Study (EMF36)

This article summarizes insights from the 36th Energy Modeling Forum study (EMF36) on the magnitude and distribution of economic adjustment costs of greenhouse gas emission reduction targets. Under the Paris Agreement, countries have committed to emission reduction targets – so-called Nationally Determined Contributions (NDCs) – in order to combat global warming. The study suggests that aligning NDCs with the commonly agreed 2°C temperature target will induce global economic costs of roughly 1% in 2030. However, these costs are unevenly distributed across regions. Countries exporting fossil fuels are most adversely affected from the transition towards a low-carbon economy. In order to reduce adjustment costs at the global and regional level, comprehensive emissions trading which exploits least-cost abatement options is strongly desirable to avoid contentious normative debates on equitable burden sharing. Lump-sum recycling of revenues from emissions pricing, in equal amounts to every household, appeals as an attractive strategy to mitigate regressive effects and thereby improving the social acceptability of stringent climate policy.

Political Business Cycles in Post‐Communist European Countries

This article analyses political business cycles (PBCs) in ten former European communist countries. The dataset used covers the period 1990‐2018. The results show that the PBCs manifest themselves in these countries through both fiscal and monetary policy. Changes in government expenditure during election times are found to be significant in reducing unemployment. Hence, it signals that there is a politically driven fiscal expansion. The results also show the importance of institutional quality in reducing the effects of the PBCs. The monetary policy models indicate that changes in money stock during and around election times affect the unemployment rate. Undertaking a subsample analysis of the non‐EU and EU members highlights the case that the membership of the EU is an important factor in preventing the development of PBCs.Related ArticlesHazakis, Konstantinos J. 2015. “The Political Economy of Economic Adjustment Programs in the Eurozone: A Detailed Policy Analysis.” Politics & Policy 43 (6): 822‐854. https://doi.org/10.1111/polp.12141Rogers, Chris. 2009. “The Politics of Economic Policy Making in Britain: A Re‐Assessment of the 1976 IMF Crisis.” Politics & Policy 37 (5): 971‐994. https://doi.org/10.1111/j.1747‐1346.2009.00207.xSager, Fritz, and Markus Hinterleitner. 2016. “How do Credit Rating Agencies Rate? An Implementation Perspective on the Assessment of Austerity Programs during the European Debt Crisis.” Politics & Policy 44 (4): 783‐815. https://doi.org/10.1111/polp.12165

The effectiveness of primary health care reforms in Greece towards achieving universal health coverage: a scoping review

IntroductionBetween 2010 and 2018, Greece implemented an Economic Adjustment Programme and underwent a series of extensive reforms, including in the health sector. We conducted a scoping review to examine whether the Primary Health Care reforms during that period assisted the country in moving towards Universal Health Coverage.MethodsWe performed a review of the literature on the following databases: Scopus, PubMed, Epistemonikos, Web of Science, and Google Scholar, including published research articles and grey literature. Findings were synthesised thematically, using the World Health Organization Universal Health Coverage dimensions: population coverage, service coverage, and financial protection.ResultsForty-four documents were included in this review. Out of these, thirty-eight were research-based (thirty-three qualitative, two quantitative, and three mixed design studies), two grey literature, and four legislative bills. The evidence suggests that despite the systemic interventions addressing longstanding distortions, population coverage, service coverage and financial protection have not significantly improved.ConclusionsThis review suggests that Primary Health Care reforms in Greece have not managed to substantially improve Universal Health Coverage, although some positive steps towards that direction have taken place with the establishment of community-based multidisciplinary health teams. Before further interventions are implemented, an evidence-based monitoring and evaluation mechanism is necessary in order to clearly evaluate their effectiveness and progress.

PERCEPTIONS OF STAKEHOLDERS REGARDING ECONOMIC (FINANCIAL) ADJUSTMENT OF STUDENTS IN SOCIETY

Purpose of the Study: The key purpose of the study was to know the perceptions of stakeholders (Principals, Teachers, Students, and Parents) regarding economic (financial) adjustment of Public, Private Schools, and Deeni Madaris students in society.
 Methodology: The study was a survey (cross-sectional) in nature. The population of the study consisted of (N = 405957) respondents including Principals, teachers, students, and parents in which (n =1500) respondents were taken as samples of the study by applying L.R. Gay, (2003) Sample Size rule of thumb through multistage sampling techniques. In the study, Public, Private schools and Deeni Madaris students were compared regarding their economic (financial) adjustment in society. Data were taken through a self-developed questionnaire of the 6-Points Likert scale. The Study delimited to six Southern districts of KP. Results, Discussion, and Conclusions were drawn in the study.
 Main Findings: The key findings of the study revealed in results were that the perceptions of stakeholders (Principals, teachers, students, and parents) were found more inclined towards Deeni Madaris students regarding their economic (financial) adjustment of students in society as compared to Public and Private school students.
 Applications of this study: The study may be quite useful and significant for school heads, teachers, parents, students, government, education department, policymakers, and public as well if the students of Public, Private schools and Deeni Madaris were encouraged towards economic (financial) activities in developing country like Pakistan for their better earning purposes e.g. students practicing their economic (financial) practices in advanced countries like China, USA, United Kingdom and so on.
 Novelty/Originality of this study: This study may be a new approach in Pakistan to encourage students towards economic (financial) responsibilities to earn and make money in order to facilitate their families (parents), and even the government of the time to reduce poverty in Pakistan in this regard like students earning and strengthening their financial positions (income/economy) in China, France, US, UK, etc.

The incidence of CO2 emissions pricing under alternative international market responses: A computable general equilibrium analysis for Germany

We investigate the economic impacts of CO2 emissions pricing for Germany in the context of the Paris Agreement where we highlight the role of international market responses for the incidence across heterogeneous households. We consider three settings for international spillover effects: (i) a small-open-economy framework where international commodity prices remain constant, (ii) a multi-region-trade framework with endogenous terms of trade where only Germany undertakes emission pricing, and (iii) a multi-region-trade framework where all other regions also price CO2 emissions. In all three settings Germany complies to a given domestic CO2 emissions reduction target through economy-wide uniform CO2 emissions pricing. CO2 revenues are recycled lump-sum to households on an equal-per-household basis. We find that the small-open-economy setting in the case of Germany not only overstates overall economic adjustment costs to CO2 emissions pricing, but also understates the degree of progressiveness of CO2 revenue recycling. The reason is that in the multi-region-trade frameworks Germany is able to pass through part of its economic adjustment costs to trading partners via higher export prices. As a consequence, the CO2 prices required to achieve the domestic emissions reduction target are higher, yielding more CO2 revenues that are recycled to households.

Fiscal adjustments, income inequality and economic growth: an empirical analysis of Japanese prefectures

PurposeThis paper investigates the joint relationship between economic growth, income inequality and fiscal adjustments using a panel of 47 Japanese prefectures from 1998 to 2017.Design/methodology/approachTo assess jointly fiscal adjustment impacts on growth and inequality and to take into account the interdependence between these variables, the authors use a simultaneous equation model and estimate it by using the three-stage least squares estimation method.FindingsThe results show evidence of a trade-off between growth and inequality through fiscal adjustments. They reveal that first, fiscal adjustments have contractionary effects on growth. Second, they highlight the disparity between urban and rural taxpayers. Third, they provide evidence of a trade-off between fiscal adjustments and inequality through the labor market.Research limitations/implicationsBased on the literature, the composition of fiscal adjustments is a crucial factor in analyzing fiscal adjustment impacts on economic growth and income inequality. The authors do not consider this aspect in the analysis; however, fiscal policy outcomes variables are included as a workaround for this.Practical implicationsThese results suggest that authorities favor expenditure-based adjustments as they are less contractionary on the economy. Moreover, they should finance public expenditures through a tax on capital in order to mitigate fiscal adjustment impacts on inequality while promoting growth.Originality/valueThe paper is novel in testing the existence of a trade-off between economic growth and income inequality through fiscal adjustments at a sub-national level with an additional focus on urban and rural regions.

Leveraging the European Refugee Crisis: Forced Displacement and Bargaining in Greece's Bailout Negotiations

AbstractHow does forced migration feature in EU member states' foreign policy and how does it affect their bargaining strategies? While the literature highlights EU‐level policies aiming to manage forced migration flows, we examine how Greece sought to leverage its response to the 2015–16 European migrant crisis. We propose a theoretical framework that explains why the SYRIZA–ANEL government sought to leverage Greece's position as a refugee‐host state via an issue​‐linkage strategy tying the management of forced migration to economic aid over the Third Economic Adjustment Programme. Initially employing a ‘blackmailing’ strategy focused on threats, Greece shifted to a ‘backscratching’ strategy of co‐operation after March 2016, once its geopolitical importance and numbers of asylum seekers within its territory were reduced. We provide the first detailed analysis of Greece's foreign policy response to the European migrant crisis, demonstrating the importance of forced displacement in the international politics of EU member states.

The Urbanization of Indians in Winnipeg, Toronto, Edmonton and Vancouver: A Comparative Analysis

This study undertakes a comparative analysis of the migration, adjustment and integration of Indians into four large Canadian cities. The study explores several dimensions of the urbanization of Native people including: motivational determinants of the migration, employment and income structures, kinship networks, institutional participation, social adjustment, and return migration. The analysis demonstrates that Native people in urban areas exhibit low levels of economic adjustment and do not extend their participation into the institutions of the larger society. Rather, they appear to exhibit a “dual orientation” pattern of urban accommodation, exploiting the city for economic purposes but looking to the reserves for ideology, cultural identity, and social ties.

The Effects of the Economic Adjustment Programmes for Greece: A Quasi-Experimental Approach

Three Economic Adjustment Programmes (EAPs) were implemented in Greece, between 2010 and 2015, without achieving the proposed economic objectives. This article analyses the impact of the EAPs in Greece using the synthetic control method (SCM) and has three main contributions. First, it identifies a long-term negative impact worth 35.3 per cent of the Greek GDP per capita caused by the application of the EAPs. Second, it finds that three-quarters of the estimated negative and unsustainable impact accumulated over the 2010–2012 period. Third, it identifies a regressive effect of the EAPs on income distribution, the Greek population with lower incomes experienced a greater negative effect caused by the adjustment programmes. These results underscore the need to review and correct the conditional financial assistance framework currently in force in the European Union.

The persistent consequences of adverse shocks: how the 1970s shaped UK regional inequality

Abstract The economic shocks experienced by the UK economy in the 1970s brought major changes in the spatial distribution of employment rates in the UK. This paper traces the long-run implications of these changes, suggesting that they were highly persistent and to a large extent shape current UK regional disparities. Most of the Local Authority Districts that experienced large negative shocks in the 1970s had high deprivation rates in 2015, and they constitute two-thirds of all districts with the highest deprivation rates. We conclude that neither economic adjustment processes nor policy measures have acted to reverse the effect of negative shocks incurred nearly half a century ago.

Austerity, Assistance and Institutions: Lessons from the Greek Sovereign Debt Crisis

This paper studies the Greek sovereign debt crisis in the aftermath of the 2007-8 global financial crisis looking for barriers to, and engines of, growth. The vehicle is a calibrated medium-scale micro-founded macroeconomic model. Departing from 2008, our simulations show that the adopted economic adjustment program (the fiscal austerity mix combined with the fiscal and monetary assistance provided by the EU, ECB and IMF), jointly with the observed deterioration in institutional quality (the degree of protection of property rights) can explain most (around 22% of GDP) of the cumulative loss in GDP in the data (around 26% of GDP) between 2008 and 2016. In particular, the economic adjustment program can explain a fall of around 12%, while the deterioration in property rights accounts for another 10%. Counterfactual simulations, on the other hand, show that this loss could have been around 9% only, if the country had followed a different fiscal policy mix; if the degree of product marker liberalization was closer to that in the core euro zone countries; and, above all, if institutional quality in Greece had simply remained at its pre-crisis level. On the other hand, in the absence of the official fiscal bailouts, the depression would be much deeper, while, the accommodative role played by the quantitative policies of the ECB has been vital to the Greek economy. These results can be useful in the face of the ongoing covid-19 crisis.Supplementary InformationThe online version contains supplementary material available at (10.1007/s11079-020-09613-3)

Greece Before and After the Euro: Macroeconomics, Politics and the Quest for Reforms

This paper analyses developments in the Greek economy before and after the euro. The main thesis is that the imbalances that led to the crisis of the post-2010 period were building up during the previous three decades and that their root causes were not merely economic, but social, structural, institutional and political. The fiscal imbalances created in the 1980s were not adequately addressed by the convergence policies of the 1990s, while the long-standing problem of low international competitiveness was further exacerbated by the failure to promote the necessary structural reforms. Greece's accession to the euro area with major structural and fiscal imbalances and low and deteriorating international competitiveness, led to a steep rise in its external indebtedness. The lopsided adjustment and the inadequacy of the reforms was due to domestic political and social constraints, both before and after euro area entry. In view of the institutional weaknesses of the euro area itself, the external imbalances ultimately led to the external debt crisis of 2010, the imposition of the economic adjustment programs and the ‘great depression’ of the 2010s. The paper also explores the prerequisites for a sustained recovery of the Greek economy within the euro area, once the global economic crisis induced by the coronavirus pandemic is over. The quest for wide ranging reforms remains Greece’s top priority.