Growth Rate Of Real Output Research Articles

Post COVID-19 exit strategies and emerging markets economic challenges.

We study emerging markets' 1980s lost growth decade, triggered by the massive reversal of the snowball effect in the US during 1974–1984, finding that higher flow costs of servicing debt overhang explain the dramatic decline in growth rates of exposed emerging markets. We also show how lowering the US cost of servicing its public debt has been associated with higher US, Japan, and Western Europe real output growth rates during the post WWII recovery decades, 1946–1956, and validate that fiscal adjustments of large countries have strong growth and volatility spillovers effects on exposed emerging markets and developing countries.

The predictive content of public debt for real output expansions and contractions over three centuries: A Markov switching analysis for the UK

This paper examines the relationship between public debt and real output in the UK during the last three centuries to identify changes in the historical growth rates of real output, to understand the asymmetric behavior over real output expansions and contractions, and to consider whether the growth rate of the debt-to-GDP ratio is a leading indicator of the time-varying transition probabilities between expansions and contractions. The Markov switching analysis showed that changes in the debt-to-GDP ratio have predictive content for real output expansions with a negative sign and constitute a leading indicator of the transition probabilities across the two regimes.

Fiscal policy and economic growth: Evidence from Central and Eastern Europe

This study aims to estimate the impact of three fiscal instruments (direct tax revenue, indirect tax revenue and government consumption expenditure) on the economic growth of ten new European Union member states from Central and Eastern Europe– Bulgaria, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. We examine the hypothesis about the effect of expansionary fiscal policy on economic growth. The study employs a vector autoregression and annual Eurostat data for the period 2007–2019. Four control variables (the shares of gross capital formation, household consumption, exports in GDP, and the economic growth in the euro area) are included in the model to account for the influence of non-fiscal factors on economic growth. The empirical results indicate that the real output growth rate in the ten new member states of the European Union is negatively affected by direct tax revenue, while economic growth in the euro area, exports and gross capital formation are positively related to economic growth. The results also imply that government consumption and indirect tax revenue have no significant impact on the growth rate of real output of the ten studied countries from Central and Eastern Europe. It may be inferred that policymakers in the new European Union member states can raise economic growth by encouraging exports and investment and by lowering the share of direct tax revenue in GDP. From the three analyzed fiscal instruments (direct taxes, indirect taxes and government consumption expenditure), only one has proven to be effective in the case of the new member countries.

The impact of institutions on economic growth in OECD countries

ABSTRACT In the endogenous growth theory, the accumulation of knowledge is the main driver of growth. However, the mechanism for transforming knowledge into new goods and services depends on institutions. Using a growth accounting framework, we conclude that institutions contributed more than 0.3 percentage points to the estimated average annual growth rate of real output in 28 OECD countries between 2011 and 2017.

Estimation of Monetary Policy Reaction Function and Inflation Function under Fiscal Dominance in Egypt

The Egyptian economy has been suffering from a high and persistent budget deficit as a percentage of GDP over the past decades. The need to finance this deficit emerged through the inflationary monetary financing of the Central Bank of Egypt or by purchasing government debt. This resulted in the accumulation of public debt from internal and external sources. The purpose of this study is twofold: The first is to test the extent of fiscal dominance over monetary policy in Egypt and assess the dynamic behavior of inflation, considering the impact of real, monetary and financial factors under the fiscal dominance. The second is to prioritize monetary policy by estimating the CBE's response function. The results of the study showed that the dominance of the monetary policy is deeply rooted in the Egyptian economy through monetary financing of the budget deficit and the government's absorption of a large part of the net domestic credit of the Central Bank. The results of assessing the reaction of the central bank confirmed the existence of multiple and conflicting monetary policy objectives to target the stability of the exchange rate, stabilize the inflation rate and increase the real output growth rate; but the highest priority was to maintain the exchange rate stability more than targeting inflation.

The effectiveness of monetary policy and output fluctuations: An asymmetric analysis

AbstractPrevious studies have investigated asymmetries in the effects of monetary policy on the real economic activity by using either vector autoregressive (VAR)‐based regime‐switching models with smooth transition technique or Gaussian functions to parameterise the dynamic effects of structural shocks on the economy. These kinds of VAR models assume asymmetry as a short‐run relationship between the series since the long‐run neutrality hypothesis of money states that monetary policy can only affect productive capacity of the economy in the short run, but not in the long run. The recent theoretical literature shows that this hypothesis is not quite right. Thus, this paper examines the extent to which monetary policy has a long‐run asymmetric effect on output in a number of Organisation for Economic Co‐operation and Development countries by using a nonlinear hidden cointegration analysis within a likelihood‐based panel framework. The findings indicate that there is a long‐run relationship between the real interest rate as an indicator of monetary policy and the growth rate of real output in five countries out of nine under review. This gives support for the view that output has responded asymmetrically to the real interest rate changes. The economic implication of our results is that monetary policy affects positive and negative output fluctuations differently.

Monetary Policy and Interest Rate Spreads

This paper investigates the effects of monetary policy shocks and uncertainty about monetary policy on key macroeconomic variables and interest rate spreads — the term spread and credit spread. We use monthly data for the United States and a multivariate structural GARCH-in-Mean VAR model to estimate the effects on the growth rate of real output, the inflation rate, term spread, credit spread, and the policy rate. We find statistically significant effects on all economic and financial variables.

The Dependence of China’s Monetary Policy Rules on Interest Rate Regimes: Empirical Analysis Based on a Pseudo Output Gap

Although a large number of scholars have studied the policy preferences and monetary policy rules of China’s central bank, most have found no evidence that China’s central bank has adjusted the nominal interest rates against the output gap. By constructing the pseudo output gap defined by the deviation of the real output growth rate and the target growth rate, this paper finds that China’s central bank prefers to adjust the nominal interest rates against the pseudo output gap. The monetary policy preferences and rules of China’s central bank in different interest rate regimes are investigated based on the threshold Taylor rule model. It is found that, in the high-interest-rate regime, the central bank adjusts the nominal interest against the inflation gap and the pseudo output gap, while in the low-interest-rate regime, there is no evidence that the central bank adjusts the nominal interest rates against the pseudo output gap. The lower bound of interest rate reduction and the weakening of interest rate policy effects caused by the liquidity trap of the interest rate are the possible reasons for China’s central bank not to adjust the nominal interest rates against the pseudo output gap.

Okun’s Law at the Florida MSA Level

This paper applies a fixed effects panel data spatial econometric model of Okun’s law to FloridaMetropolitan Statistical Areas (MSAs) over the period 1990 to 2015. The regression coefficients are used to estimate the impact of increases in output on unemployment and each MSA’s potential rate of output growth. Results indicate that Okun’s coefficient ranges from -0.19 to -0.24 at the MSA level. Between one-half to two-thirds of changes in local unemployment occur as a spillover effect from neighboring MSA output growth. Each MSA’s potential real output growth rate averages between 1.7 to 2.7 percent.

The effect of military spending on output: New evidence at the global and country group levels using panel data cointegration techniques

The objective of this research is to examine the effect of the growth rate of military spending on the growth rate of real output in 126 countries using panel data for 1980–2016. We used data from the World Development Indicators of the World Bank and from the Stockholm International Peace Research Institute. With the aim of capturing the heterogeneity among countries by income level, we divided countries into four groups: upper income, upper middle income, lower middle income, and lower income. Using cointegration and causality techniques for panel data, we found robust empirical evidence that suggests that military spending and real output have long and short-term equilibrium relationships in the different income groups. The results of the causality test suggest that there is a unidirectional causal relationship from real output to military spending in high income countries; and from military spending to real output in upper-middle and lower-middle income countries, and that no causal relationship in either direction exists in lower income countries. A policy implication derived from our research is that medium-low and low-income countries should redirect military spending toward more productive activities to increase long-term economic growth.

Contagion effects of sovereign credit rating revisions on the real economy: is it trade or finance?

ABSTRACT We analyse the contagion effects of sovereign credit rating revisions on the real economy, with particular emphasis on the intensity of trade and finance channels. Our findings show that event countries that experienced rating revisions cause substantial contagion effects on the real output growth rates of nonevent countries. Nonevent countries with a high export ratio, high external debt levels, or those that are more dependent on common bank credit relative to other nonevent countries are more likely to be infected by event countries’ adverse credit shocks. The results remain after accounting for alternative real economy indicators, financial liberalization, financial crises, and economic development status.

Employment Deceleration in the Unorganised Rural Non-Farm Sector in Assam

The aim of this paper is to examine the recent employment trends in the unorganised rural non-farm enterprises (URNFEs) in Assam. The analysis based on the National Sample Survey (NSS) 67th and 73rd quinquennial rounds of enterprise survey data reveals that there has been an absolute decline in employment in the URNFEs in the state during 2010-11 to 2015-16. Much of this decline in employment took place in the services sector, though the other sectors such as, manufacturing and trading also experienced a decline in employment. The growth rate of real output of the URNFEs in the state has also been very slow. The employment elasticity of the URNFEs turned out to be negative and fairly high indicating the failure of the sector to create employment opportunities in the state despite having immense potentiality for it.

Capital in the Twenty-First Century: Reinterpreting the fundamental contradiction of capitalism

ABSTRACTAt a theoretical level this article discusses Piketty’s hypothesis that the distribution of income and wealth tends to become more concentrated over time when the rate of return on capital is greater than the growth rate of real output. We develop a post Keynesian model of growth and distribution showing that once capital is differentiated from wealth, the increase in income and wealth concentration actually occurs when the rate of valorization of financial and real estate assets is greater than the growth rate of real output, and that this situation may be triggered by financial liberalization.

Markov-Switching Models with Evolving Regime-Specific Parameters: Are Postwar Booms or Recessions All Alike?

Abstract In this paper, we relax the assumption of constant regime-specific mean growth rates in Hamilton's (1989) two-state Markov-switching model of the business cycle. We introduce a random walk hierarchy prior for each regime-specific mean growth rate and impose a cointegrating relationship between the mean growth rates in recessionary and expansionary periods. By applying the proposed model to postwar U.S. real GDP growth (1947:Q4–2011:Q3), we uncover the evolving nature of the regime-specific mean growth rates of real output in the U.S. business cycle. Additional features of the postwar U.S. business cycle that we uncover include a steady decline in the long-run mean growth rate of real output over the postwar sample and an asymmetric error-correction mechanism when the economy deviates from its long-run equilibrium.

More than just numbers: Suicide rates and the economic cycle in Portugal (1910–2013)

Suicides are a major concern for public health first and foremost because they are an avoidable cause of death. Moreover, they can be an indicator of self-reported emotional satisfaction and a good marker of overall well-being.In this study we examine how different economic and social aspects affected Portuguese suicide rates for more than one hundred years (1910–2013). We place this exercise in the specific historical context of the XX and early XXI century in Portugal, emphasizing the role of economic recessions and expansions. Controlling for aspects like wars, health care availability, political instability, and demographic changes, we find a strong association between a decline in the growth rate of real output and an increase in suicide rates for the whole population. In this regard, while male suicide rates are non-negligibly influenced by economic downturns, female suicide rates are in general more responsive to a more open political and economic environment. Our results are robust if we consider the mid-term cyclical relationship.Our findings advocate that, during recessions, public health responses should be seen as a crucial component of suicide prevention.

The Transmission Effects of the U.S. Monetary Policy Shocks in the Korean Output and Trade: A SVAR Approach

This paper estimates the bilateral trade balance and real output growth rate in Korea to identify the transmission effects of the U.S. monetary policy shocks and then presents a statistical decomposition of the rate through a structural VAR using monthly data from January 1999 to December 2014. Results showed that the Korean trade balance is negatively affected by the U.S. monetary shocks through the exchange rate channel because of the most direct policy transmission channels is the international capital flows and exchange rate in the short-term. On the other hand, domestic real output is positively affected by the external monetary policy shocks over time. Thus the estimations of the trade balance and output growth in Korea suggest that, over the sample period, real economy in the small open economy influenced by the monetary policy shocks in the large country such as the U.S. Therefore, it is important to respond appropriately to changes in exchange rates in order to reduce unexpected negative influence from the external shocks.

The persistent effect of banking crises on investment and the role of financial markets

Purpose – While the literature studying the effect of banking crises on real output growth rates has found short-lived effects, recent work has focused on the level effects showing that banking crises can reduce output below its trend for several years. This paper aims to investigate the effect of banking crises on investment finding a prolonged negative effect. Design/methodology/approach – The authors test to see whether investment declines after a banking crisis and, if it does, for how long and by how much. The paper uses data for 148 countries from 1963 to 2007. Econometrically, the authors test how banking crises episodes affect investment in future years after controlling for other potential determinants. Findings – The authors find that the investment to GDP ratio is on average about 1.7 percent lower for about eight years following a banking crisis. These results are robust after controlling for credit availability, institutional characteristics, and a host of other factors. Furthermore, the authors find that the size and duration of this adverse effect on investment varies according to the level of financial development of a country. The largest and longer-lasting decrease in investment is found in countries in a middle region of financial development, where finance plays its most important role according to theory. Originality/value – The authors contribute by finding that banking crisis can have long-term effects on investment of up to nine years. Further, the authors contribute by finding that the level of development of the country's financial markets affects the duration of this decrease in investment.

Is there an optimal forecast combination?

We consider several geometric approaches for combining forecasts in large samples—a simple eigenvector approach, a mean corrected eigenvector and trimmed eigenvector approach. We give conditions where geometric approach yields identical result as the regression approach. We also consider a mean and scale corrected simple average of all predictive models for finite sample and give conditions where simple average is an optimal combination. Monte Carlos are conducted to compare the finite sample performance of these and some popular forecast combination and information combination methods and to shed light on the issues of “forecast combination” vs “information combination”. We also try to shed light on whether there exists an optimal forecast combination method by comparing various forecast combination methods to predict US real output growth rate and excess equity premium.

Is there a Core of Macroeconomics that Euro Area Forecasters Believe In?

Abstract The quantity theory of money, Okun’s law, and the Phillips curve are cornerstones of macroeconomic theory. But are they also of practical relevance? Using survey data for the euro area, we found that professional economists’ forecasts are consistent with a version of the quantity theory in which forecasts of the growth rate of money supply correlate in a proportional way with forecasts of the inflation rate. We also found that forecasts of changes in the unemployment rate and forecasts of the growth rate of real output are consistent with Okun’s law. Evidence of a systematic link between forecasts of the inflation rate and forecasts of the unemployment rate, however, is not strong.

Markov-Switching Models with Evolving Regime-Specific Parameters: Are Post-War Booms or Recessions All Alike?

In this paper, we relax the assumption of constant regime-specific mean growth rates in Hamilton’s (1989) two-state Markov-switching model of the business cycle. We introduce a random walk hierarchical prior for each regime-specific mean growth rate and impose a cointegrating relationship between the mean growth rates in recessionary and expansionary periods. By applying the proposed model to postwar U.S. real GDP growth (1947:Q4-2011:Q3), we uncover the evolving nature of the regime-specific mean growth rates of real output in the U.S. business cycle. Additional features of the postwar U.S. business cycle that we uncover include: i) a steady decline in the long-run mean growth rate of real output over the postwar sample and ii) an asymmetric error-correction mechanism when the economy deviates from its long-run equilibrium.