GDP Gap Research Articles

The Future of US-Chinese Relations under the Administration of Donald Trump

Long-standing objectives of U.S. foreign policy remain unaltered regardless of the person incumbent. The US elite unanimously see the purpose of maintaining its leading role in international relations. It is still possible that there will be some corrections the American foreign policy but they will not alter the general line. Donald Trump won the US presidential elections. He announced one of his strategic lines in foreign policy is to deter China. From the author's point of view, is to have complex consequences in economics, foreign-policy and defense strategies. The economic growth of China is declining, albeit for the past decades China became the second world power. The USA, at the same time, successfully overcame the consequences of financial crisis 2009. Nowadays, the GDP gap between considering countries is growing again and China is unlikely to reduce it in the short term. It is possible that during the diplomatic negotiations, the USA will reduce its influence in some world regions: they are ready to redistribute the spheres responsibility and demonstrate their attentive position to the interests of other state. The US-China relationships exist in changeable and dynamic forms and in this context, China relates to the stability of its partnership with Russia.

Інструментальний аналіз розриву ВВП в Україні

Based on modern approaches to constructing a production function, the article estimates the GDP gap (the gap between actual real GDP and potential GDP) in the Ukrainian economy during the period from 2000 to 2017, as well as the current and forecasted dynamics of the factors making a significant impact on the size of Ukraine's GDP. On the results of the decomposition of the GDP gap, the authors identify the most influential factors shaping the trend of this country's economic growth. The article proposes a model tool for estimating the GDP gap based on the structure of extended production function with five integral indicators as explanatory factors of resource provision (production, human, scientific-technological, financial, foreign, and economic). It is calculated that the gap of the potential GDP to the level of 1990, in the optimistic variant, can be overcome already in 2019-2020, although under the pessimistic scenario it will still amount to -11.6% in 2020, and in the baseline it will be reduced to -7.2%. The authors carry out a tool based analysis of the GDP gap reduction, in particular: with reduced unemployment, with increased volume of gross fixed capital formation, with an overcome of the significant real wage disparities and real labor productivity, etc. On the whole, the reduction of the recession GDP gap in Ukraine will be affected by: reduced unemployment (according to our calculations, the reduction in unemployment from 9.4% in 2017 to 9.2% in 2018 will result in a 0.1% reduction of the GDP); a considerable increase of the gross fixed capital formation (in the medium term, Ukraine should target at least 20% of GDP, and in the long run - up to 25%), which will facilitate the transition of the Ukrainian economy to the modernization mode; a gradual increase in real wages both due to rising nominal wages and lower inflation (wage growth rates in real terms should correspond to the real growth rates of labor productivity); and an increase in the aggregate level of labor productivity, first of all, due to intensified innovation. According to our calculations, an increase in R&D expenditures from 0.6% of GDP to 1.7% of GDP in 2017 would reduce the GDP gap by more than a half. Overcoming the gap in GDP should become an important constructive component of the economic development of Ukraine's economy in the medium and long term.

SUSTAINABILITY OF FISCAL POLICY: ESTIMATING A FISCAL REACTION FUNCTION FOR TURKEY

In this study a Fiscal policy analysis is used for Turkey between the periods 2006:1-2016:2 to assess the sustainability of fiscal policy. A fiscal reaction function is estimated to analyze the effects of public debt and fluctuations in GDP on the primary balance. The fiscal reaction function is obtained from the intertemporal government budget constraint in order to depict the behaviour of government towards the public debt. The results suggest that the primary budget balance reacts significantly to the previous increase in GDP gap. http://dx.doi.org/10.17130/ijmeb.2018239936

PERSISTENCE IN CONVERGENCE AND CLUB FORMATION

ABSTRACTIn this paper, we examine the convergence hypothesis using a long memory framework that allows for structural breaks and does not rely on a benchmark country using both univariate and multivariate estimates of the long memory parameter d. Using per capita GDP gaps, we confirm the findings of non‐stationarity and long memory behavior that have been found previously in the literature using univariate tests. However, the support for these findings is much weaker when using a multivariate framework, in which case we find more evidence of stationary behavior. Based on these results, we also investigate club formation, something that would suggest the presence of conditional convergence. We describe a club formation methodology using the sequential testing criteria that we have employed in our analysis as the basis for forming clusters or clubs of countries with similar convergence characteristics.

Model for Integrating Monetary and Fiscal Policies to Stimulate Economic Growth and Sustainable Debt Dynamics

This article examines the main integration trends of the state's monetary and fiscal policy in influencing economic growth and maintaining the sustainability of public debt. It is argued that the relationship between these trends of macroeconomic regulation is predetermined, on the one hand, by the potentially negative impact of fiscal expansion from the point of view of inflation, and by the negative impact of a likely state default in failing to refinance the debt from the Ministry of Finance, on the other hand. The paper studies the selected array of statistical data using the fiscal policy multipliers concept, the relationship between the effect of increase/decrease in budget expenditures, the slowdown in economic activity and the efforts by the Central Bank to offset fiscal measures, on the one hand, and the ratio of an increase/decrease in budget revenues and debt expenditures used to finance the budget investments, on the other hand. It is revealed that the investments are effective if implementing budget expenditures in the presence of the GDP gap and unrealized expectations of economic agents, while reducing spending in such a situation will intensify the recession. The GDP growth determined by these investments should provide the tax effect sufficient to cover the expenses. Otherwise, there can be negative effects of debt that establishes the need for measures to refinance public debt by the Central Bank. The conclusions of the paper can be used to assess the possible integration of monetary and fiscal policy based on various states.

Перспективи зростання економіки України на фоні глобальних трендів

Перспективи зростання економіки України на фоні глобальних трендів

Forewarned is Forearmed: Configuring an Early Warning Mechanism for Macro-Financial Space in India

This paper makes attempts to identify a set of early warning indicators for Indian macro-financial space and estimates the efficacy of chosen indicators in signaling the crises. The results showed that a few indicators (such as ‘credit to GDP gap’, ‘output GAP’, ‘Credit growth’, ‘Deposit growth’, ‘CRAR’, ‘Gross NPA Ratio’ and ‘ROA’) performed well in identifying the financial distress with good signal and low noise ratios. As it is difficult to monitor movements of several indicators individually, that too pertaining to different sectors, while predicting crises, an attempt is also made to construct three composite indices, viz., Index of Speculative Pressures, Index of Macroeconomic Vulnerability and Index of Banking Sector Vulnerability and finally an overall Systemic Financial Stability Index. Results corroborate that composite indices performed better in signaling the crises well in advance. The noise ratio too looks better for them.

Products, Assets, and Money: For an Alternative Macroeconomic Narrative

Economics might well encompass the asset market, which in turn requires completely new narratives. In addition, money may well be given the single function of the medium of exchange. Then, the defective IS-LM model can be replaced by more logical and simpler explanations: incremental money provision (ΔM) directly promotes consumption spending (C) and asset purchases, a part of which is for newly-produced assets (I). Here, it becomes clear that the interest rate is not the cause for aggregate investment (I) but the effect of asset trade. Another truth is that the price level (P) and the real GDP (Y) are nothing but indexes and totally meaningless by themselves. Therefore, they should be replaced by their growth rates (π versus g) in the AS-AD model. More generally, economists need to pay keen attention to dimensions of various quantities not to commit widely observed “dimension aberration” such as taking the dimensionless percentage gap in GDP (log Y – log Y*) for the gap in growth rates (g – g*) with a time dimension (T-1).

Dynamics of Product Complexity in Africa:Structural Estimation Using Structuralists Model

AbstractApplying the linear LAS (Latin American Structuralists) technological intensity model in Africa, this paper presents African nations are still diversifying their outputs towards the ubiquitous (fewer complexes) products. Put it simple, using the economic complexity index of Africa (explanatory variable) as a proxy for the technological intensity in Africa and per capita GDP gap (explanatory variable) as a proxy for technology gap, the paper presents a significant and positive relationship between economic complexity index of Africa and the time derivative of the economic complexity index of Africa (the explained variable). This implies that “weak” effort African nations exerted so far in diversifying their outputs towards the less ubiquitous commodities and absence of “automatic catch up tendency” (unlike what is presupposed by the mainstream neo-classical growth models). The linear panel data regression is employed on sample of 23 African economies and OECD member economies for the period 1996-2014.

Mind the missing links in China's urbanizing landscape: The phenomenon of broken intercity trunk roads and its underpinnings

The success of intercity transport planning is not guaranteed, with broken intercity trunk roads (BITRs) as a major case in point. This paper reports a first exploratory analysis of BITRs in China. Our analysis identifies geographical patterns of broken intercity highways and conjectures the relationship between BITRs and their socioeconomic, political, and geographical underpinnings. More specifically, by comparing national highway plans in 2013 and completed highways in 2015, we identified 76 city dyads that are associated with BITRs. A subsequent logistic regression analysis suggests that fragmented landscape, large gaps in total GDP, and provincial boundaries will increase the likelihood of BITRs between city dyads. Our empirical framework can be extended to assess other inter-jurisdictional infrastructure projects such as power grids, railways, and pipelines, where planned but unfinished links are common. The paper concludes with city-regional and transport planning policy implications.

Gender Biased Institutions and the Wealth of Nations

I examine how economic institutions which exhibit a socio-cultural bias against women may reduce the wealth of a nation and undermine its economic wellbeing. In particular, I explore the origin of various types of gender gaps in a society and their impact on its economic welfare. My hypothesis is that the economic factors that cause gender gaps in an economy comes only partly from the market economy and largely from the underlying social norm and that economic welfare varies inversely with gender gaps. In a dynamic general equilibrium model of economic growth with optimizing men and women, I characterize non-trivial effects of gender-biased institutions and technology on the endogenously developed gender gaps in (a) the labor force participation rate, (b) returns to parental investment in education and (c) human capital. The model produces an explicit analytical relationship for doing growth empirics, relating the growth rate of GDP and gender gaps of various kinds. That analytical relationship among the relevant economic variables helps us to organize the newly developed dataset on crime against women by the UN, for conducting a meaningful empirical exercise. The objective of the exercise is to uncover necessary evidence for the model's hypothesis, regarding the negative effect of a gender biased society on the wealth of the nation which it embeds. Empirical results are consistent with the model's prediction that a society which generates a larger gender bias also lowers its per capita GDP.

“GDP-GNP Gap Trade-Off-is it Significant for Economic Performance? Review of World Economies Having Both Gaps”

This study directed toward identifying the comparative economic performance of countries having GDP>GNP Gap and GNP>GDP Gap. A total of 32 countries with GDP>GNP Gap and 24 countries with GNP>GDP Gap were identified and analyzed using twelve important economic indicators. The result shows that Countries with GDP>GNP Gap are doing comparatively well in employment, export, foreign reserve, GDP, import, per capita income, savings and trade investment. Countries with GNP>GDP Gap are leading in inflation and exchange rate. Although Countries with GDP>GNP Gap are leading the race but this study concludes that economic development can be ensured and sustained with these two types of gaps.

Forecasting output gaps in the G-7 countries: the role of correlated innovations and structural breaks

ABSTRACTTrend GDP and output gaps play an important role in fiscal and monetary policy formulation, often including the need for forecasts. In this article, we focus on forecasting trend GDP and output gaps with Beveridge-Nelson trend-cycle decompositions trend-cycle decompositions and investigate how these are affected by assumptions concerning correlated innovations and structural breaks. We evaluate expanding window, one-step-ahead forecasts indirectly for the G-7 countries on the basis of real GDP growth rate forecasts. We find that correlated innovations affect real GDP growth rate forecasts positively, while allowing for structural breaks works for some countries but not for all. In the face of uncertainty, the evidence supports that in making forecasts of trends and output gap policy-makers should focus on allowing for the correlation of shocks as an order of priority higher than unknown structural breaks.

Emphasis and effectiveness of monetary policy of the Fed: a historical comparative analysis (1871-2013)

Results of this paper indicate that the effectiveness of monetary policy may reflect changes in policy emphasis on inflation and output growth. The evolution of the unmanaged to managed short-term interest rate as a monetary policy tool demonstrates a continuing correcting process of a biased sensitivity towards output growth in the gold standard era to a more balanced emphasis on price stability and output growth in the modern-Fed period. Evidence of this study suggests that the monetary policy with a more balanced emphasis on inflation and output can enhance the policy effectiveness measured by a simple assessment ratio which links GDP gap and standard deviation of inflation together so that the ratio can directly quantify the Fed's two top policy goals, promoting sustainable output growth and lowering price volatility.

Emphasis and effectiveness of monetary policy of the Fed: a historical comparative analysis (1871-2013)

Results of this paper indicate that the effectiveness of monetary policy may reflect changes in policy emphasis on inflation and output growth. The evolution of the unmanaged to managed short-term interest rate as a monetary policy tool demonstrates a continuing correcting process of a biased sensitivity towards output growth in the gold standard era to a more balanced emphasis on price stability and output growth in the modern-Fed period. Evidence of this study suggests that the monetary policy with a more balanced emphasis on inflation and output can enhance the policy effectiveness measured by a simple assessment ratio which links GDP gap and standard deviation of inflation together so that the ratio can directly quantify the Fed's two top policy goals, promoting sustainable output growth and lowering price volatility.

International differences in labor productivity: Role of capital, technological level and resource rent

Using level accounting methodology this article examines sources of per capita GDP and labor productivity differences between Russia and developed and developing countries. It considers the role played by the following determinants in per capita GDP gap: per hour labor productivity, number of hours worked per worker and labor-population ratio. It is shown that labor productivity difference is the main reason of Russia’s lagging behind. Factors of Russia’s low labor productivity are then estimated. It is found that 33-39% of 2.5-5-times labor productivity gap (estimated for non-oil sector) between Russia and developed countries (US, Canada, Germany, Norway) is explained by lower capital-to-labor ratio and the latter 58-65% of the gap is due to lower technological level (multifactor productivity). Human capital level in Russia is almost the same as in developed countries, so it explains only 2-4% of labor productivity gap.

Restricted Hodrick–Prescott filtering in a state-space framework

The current paper extends previous results on Hodrick–Prescott (HP) filtering and shows that it is possible to implement the judgement-augmented, or restricted, HP filter within the state-space framework. The implementation entails augmenting the vector of measurements and altering one of the system matrices of the state-space model for the HP filter. Restrictions can thereby be incorporated in the HP filter, making, e.g., estimation more accessible. An application to US GDP gap estimation illustrates how the restricted filter could be usefully applied in an empirical macroeconomic setting.

India’s Potential Output Revisited

Estimates of potential output have been revised downward across countries in the post-crisis period. In India, the debate on potential GDP and output gap has been intensified in the wake of revision in the GDP estimates with change in base year as well as the underlying methodology consistent with international best practices. In light of these, an attempt has been made for the first time in India to estimate potential GDP and output gap on a quarterly basis by using production function approach in addition to revisiting the estimates of potential output by conventional statistical methods for the period 1980Q2–2015Q4. The findings suggest that India’s potential growth, which had accelerated to around 8 % during 2003–2008, decelerated considerably in the aftermath of the global financial crisis to about 7 % during 2009–2015, mainly due to decline in contribution of total factor productivity and deceleration in the growth of capital stocks. The estimates further suggest that output gap, i.e. the percentage deviation of actual output from its potential level, has been negative since Q3 of 2012, though the gap is closing slowly. Key to accelerate growth as well as potential output in India lies with higher level of capital formation as its contribution dominates vis-a-vis the contribution of labour and total factor productivity.

Information and communication technologies and their impact in the economic growth of Latin America, 1990–2013

This article examines the contribution of information and communications technologies (ICT) to economic growth and productivity in Latin America in the period 1990–2013. Increased ICT investment explains an important part of the acceleration of economic growth in the United States since 1995. An objective of this study is to verify if the same happened in Latin America. The analysis is presented at two levels. First, the study takes into account the aggregate level of the economy, for a set of 18 countries in the region. Second, it analyzes the relationship of ICT, economic growth and productivity by sector in five countries, Argentina, Brazil, Chile, Colombia and Mexico, which are part of a project on sectoral growth analysis using a growth accounting approach (LA-KLEMS project). The decomposition of the factors that determine the gap in GDP per capita with the US showed that improvements in the labor factor have helped to reduce the gap in GDP per capita relative to the US and conversely poor labor productivity has contributed negatively. The main cause that the labor productivity gap remains is the widening gap in ICT capital that counteracts improvements in human capital in Latin America. The role of ICT has been very low, representing less than one sixth of the total capital contribution. The analysis by economic activity, using the LA-KLEMS data base for Argentina, Brazil, Chile, Colombia and Mexico, shows that the contribution of capital is the main source of growth in the fastest growing industry, the transportation industry and communications, and went hand in hand with high investment especially in ICT.

The Beveridge–Nelson decomposition of mixed-frequency series

Gibbs sampling for Bayesian VAR with mixed-frequency series draws latent high-frequency series and model parameters sequentially. Applying the multivariate Beveridge–Nelson (B–N) decomposition in each Gibbs step, one can simulate the joint posterior distribution of the B–N permanent and transitory components in latent and observable high-frequency series. This paper applies the method to mixed-frequency series of macroeconomic variables including quarterly real GDP to estimate the monthly natural rates and gaps of output, inflation, interest, and unemployment jointly. The resulting monthly real GDP and GDP gap are complementary coincident indices, measuring classical and deviation cycles, respectively.