Implications For Macroeconomic Policy Research Articles

The linkage between economic growth, debt servicing, pollution and health expenditures: panel evidence from 42 African countries

PurposeThis study aims to examine the determinants of public healthcare spending in Africa, focusing on the impact of pollution, debt servicing, birth rates, life expectancy, GDP per capita and urbanization.Design/methodology/approachWe employed the fixed effect, IV GMM estimation and panel data of 42 African countries from 2000 to 2021 to examine the association between real GDP per capita, crude birth rate, debt servicing, CO2 emissions, population, urbanization and government healthcare expenditures.FindingsThe study result indicates that real GDP per capita, CO2 emissions and public debt servicing are the main determinants of government health expenditures in Africa. We again observed that income per capita and crude birth rate strongly impacted healthcare spending in upper-middle-income African countries more than in low- and middle-income countries. Additionally, CO2 emissions have a more profound impact on healthcare spending in middle-income countries than in lower-income and upper-middle-income countries. Lastly, the association between debt servicing and health care expenditure is stronger for lower-income countries in Africa than for lower-middle- and upper-middle-income countries.Practical implicationsThe outcome of this study has significant implications for macroeconomic and health policy not only for African economies but also for other developing and emerging economies. We suggest that African leaders adopt policies that lead to sustained growth in real GDP per capita, thereby stimulating healthcare spending. Governments should prioritize policies that curb CO2 emissions and continue to remain creditworthy to external lenders to secure more funds needed to boost health infrastructure spending.Originality/valueWhile numerous studies have delved into the determinants of health expenditure, their focus has predominantly been on OECD and developed countries. Unfortunately, only a few studies have been done on African countries. Recent studies on the topic are scarce. The few recent studies on Africa related to the paper all seem to analyze how public healthcare expenditures affect health outcomes such as under-five mortality, life expectancy and maternal mortality. Our study is among the few studies analyzing the determinants of public healthcare expenditure in Africa.

Macroeconomic Policy Implications of African Continental Free Trade Area (AfCFTA) for Nigeri

This research analysed the macroeconomic policy implications of the African Continental Free Trade Area (AfCFTA) for Nigeria from 2019 to 2023. A quantitative study methodology was utilised, employing regression analysis to examine the association between AfCFTA and essential macroeconomic variables. The study's findings indicated that AfCFTA significantly enhanced Nigeria’s GDP and trade balance, implying that greater trade liberalisation might foster economic growth and elevate Nigeria’s foreign trade performance. The study revealed no significant correlation between AfCFTA and inflation, suggesting that inflation in Nigeria is predominantly affected by local factors, including fiscal and monetary policy, rather than external trade agreements. The regression model successfully passed essential diagnostic tests for multicollinearity, heteroskedasticity, and autocorrelation, hence affirming the dependability of the results. The study concludes that Nigeria can benefit from AfCFTA through economic growth and trade expansion; however, the country must implement suitable macroeconomic policies to tackle current challenges, including infrastructure deficits and industry preparedness, to fully leverage the agreement's potential. The study advocated for the enhancement of trade facilitation infrastructure, the support of export-oriented industries, the promotion of public-private partnerships, the maintenance of fiscal discipline to control inflation, and the improvement of the overall business environment to ensure Nigeria's competitiveness in the AfCFTA market. These strategies will empower Nigeria to optimise the advantages of AfCFTA while alleviating potential risks and challenges linked to heightened trade liberalisation.

Hysteresis and the long shadow of the exchange rate regime

This paper offers empirical evidence consistent with hysteresis, which is the idea that temporary demand shocks can have long-lasting effects on the economy. I rely on the fact that fixers (i.e., countries with fixed exchange rates) were on average hit harder by the 2008 global financial crisis than non-fixers. Fixers continue to underperform non-fixers more than a decade after the crisis. This holds for the period 2008–2019, but also for sub-periods such as 2010–2019 and 2012–2019, which is indicative of hysteresis and even super-hysteresis effects. If hysteresis is real, it has important implications for macroeconomic stabilization policies and, by extension, the choice of exchange rate regime.

Heterogeneous biased expectations of young and old individuals: macroeconomic effects and policy implications

Abstract This paper examines the effects of heterogeneous biased expectations between the young and old on business cycles and explores its policy implications. Empirical findings reveal that individuals, particularly the young, can have more optimistic or pessimistic views about the future state of the economy compared to the data-generating measure. This study relates these results to the learning-from-experience literature, which suggests that individuals, particularly the young, place greater weight on recent observations when forming their expectations. Incorporating household weighting schemes into a life-cycle learning model, I show that household sensitivity to recent observations amplifies the effects of economic shocks. However, the amplification effects become less extensive as the population ages due to the lower sensitivity of the old. My simulation results indicate that a 10 percentage point increase in the old population ratio leads to a 16 percent decrease in output volatility. Regarding policy implications, this paper suggests that the government spending multiplier declines by approximately 10 percent when the old population ratio rises by 10 percentage points due to weak amplification effects. Moreover, the weakened output effects deteriorate the welfare of the population, particularly that of the young.

Revisiting the Pasinetti Index: Understanding Its Cyclical and Long-Term Features and Its Important Implications for Macroeconomic Policy

ABSTRACT This article explores the long-term and cyclical effects of the Pasinetti Index (PI) and their implications for income distribution and macroeconomic policy in a post-pandemic environment marked by inflationary pressures and increasingly restrictive central bank policies. It discusses the relevance of adopting a zero PI as monetary policy framework as either a short-term target or a long-term norm. The research underscores the importance of coordinating monetary and fiscal policies to achieve a balanced mix of short-term and long-term macroeconomic goals, as per the Pasinetti rule, aimed at stabilizing income distribution between rentier and non-rentier groups without compromising on a Keynesian full employment commitment. By analyzing historical data and employing a SVAR model for Canada and the United States, the study highlights the significant cyclical impact of PI fluctuations on unemployment and income distribution. The findings challenge the efficacy of rigid monetary policy rules and support a macroeconomic policy that reconciles short-term employment objectives and long-term distributional goals.

Follow the leader? The long‐run interaction between public and private sector wage growth in the UK

AbstractWith one‐fifth of the UK labour force employed in the public sector, public sector pay and its interaction with private sector pay is an important driver of the macroeconomy. Using new data on sector‐level earnings and sector–industry‐level pay settlements, this paper addresses the fundamental question of which sector leads and which follows in terms of earnings determination. We find that in the long run, public sector wages adjust to wages set in the private sector, maintaining a consistent relationship. We further find that there can be significant wage spillovers from the public sector to the private sector in the short run. These tend to be more pronounced for private sector industries that are domestically facing, characterized by low worker bargaining power, or reliant on public sector inputs. This paper's findings have important implications for macroeconomic policy that aims to balance inflationary forces and fiscal funding pressures.

Impact of Macroeconomic Variables on Stock Market Volatility in Kenya

Purpose: The aim of the study was to assess the impact of macroeconomic variables on stock market volatility in Kenya. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: The impact of macroeconomic variables on stock market volatility in Kenya reveals several key findings. Firstly, studies suggest that variables such as inflation rate, exchange rate fluctuations, and interest rates significantly influence stock market volatility in the country. Specifically, an increase in inflation tends to amplify stock market volatility, while fluctuations in exchange rates contribute to increased volatility, especially in the short term. Additionally, interest rate movements affect stock market volatility, with lower interest rates generally associated with higher stock market volatility. Furthermore, factors like GDP growth rate and oil price fluctuations also exhibit varying degrees of influence on stock market volatility in Kenya. Implications to Theory, Practice and Policy: Efficient market hypothesis, behavioral Finance Theory and Asset Pricing Models may be use to anchor future studies on assessing the impact of macroeconomic variables on stock market volatility in Kenya. Investors can benefit from a deeper understanding of how macroeconomic variables impact stock market volatility by incorporating this knowledge into their risk management strategies. Policymakers should consider the implications of macroeconomic policies on stock market volatility when formulating economic strategies.

An assessment of the impacts of inflation on Greek public finances: macroeconomic effects and policy implications

In 2022, the global cost of living surged, pushing already rising global inflation to multi-decade highs. Our empirical analysis assesses the impact of high inflation on Greece’s public finances (in terms of flows), considering the extraordinary economic circumstances arising from the pandemic crisis and the initial phase of the recent energy crisis. To this end, we use a small-scale Bayesian vector autoregressive model for the Greek economy to quantify the effects of an adverse price shock on the primary balance, tax revenue and primary spending (all normalised by nominal GDP), as well as on real output, distinguishing between the effects of a demand- and an external supply-driven shock to inflation. We find that the nature of an inflation shock, i.e. whether it is demand- or supply-driven, is important for correctly identifying the short-to-medium-term effects of inflation shocks on fiscal outcomes.

Population Aging and Convergence of Household Credit

Abstract This paper sheds light on the role of population aging in convergence of household credit. Using data from 32 economies over the period of 1995–2015, it shows that household credit tends to converge across countries over time, but aging populations hinder this convergence process. The result is also robust to controlling for various country-specific factors. Focusing on a further breakdown of credit to households, population aging weakens the convergence process in the case of housing loans, while it does not have a pronounced role in convergence of consumer credit. These findings can have implications for macroeconomic and financial policies, given the potential effects of household credit on economic growth and stability.

Testing Okun’s law at sectoral level: evidence from Nigeria

PurposeResearchers have long been interested in testing the validity of Okun’s law due to its macroeconomic policy implications. However, most of the studies have focused on testing the law using aggregate data on unemployment and output. In recent times, attention has been shifted to testing the law at the sectoral level. In light of this, the purpose of this study is to examine the response of unemployment to sectoral outputs in Nigeria using the data that covers a period from 1981-2020.Design/methodology/approachTo test the validity of Okun’s law at the sectoral level, both difference and gap methods of specifying Okun’s law are used. Furthermore, the author also uses a series of estimation methods, which include ordinary least squares (OLS), dynamic OLS (DOLS), fully modified OLS (FMOLS) and canonical cointegration regression (CCR).FindingsThe results, based on the difference model, are mixed irrespective of estimation and data filter methods. For the gap model, Okun’s law holds for all sectors irrespective of estimation techniques (especially DOLS, FMOLS and CCR) when the Hodrick–Prescott filter method is used to filter data. However, the author discovers that the coefficients of Okun’s law vary across the sectors as the response of unemployment to services sector output is greater than the rest of the sectors. When the Hamilton filter method is used to filter data, the results appear to be mixed across the sectors. The results are almost ditto when all the sectoral variables are put in one model.Originality/valueTo the best of the author’s knowledge, this is the first study that investigates the validity of sectoral Okun’s law in Nigeria, the leading economy in Africa.

Government innovation subsidy, monetary policy, and corporate R&D investment: evidence from China

ABSTRACT From a perspective of coordinating fiscal and monetary policies, this study constructs the government innovation subsidy indicator using the text search method, and examines the impact and mechanisms of government innovation subsidy on corporate research and development (R&D) investment, then investigates how expansionary monetary policy influences this effect. We find that government innovation subsidy can be a booster for corporate R&D by reducing corporate debt financing cost and increasing internal financing, and loose monetary policy suppresses the positive effect of government innovation subsidy on corporate R&D investment. This study offers macroeconomic policy implications that support corporate innovation.

Financial structure convergence

AbstractFinancial structure, the degree to which a country's financial system is market‐ or bank‐based, matters for economic outcomes. Hence, it is important to understand the drivers of financial structure. This paper sheds light on this issue and explores a specific mechanism in the evolution of financial structure, namely convergence. Financial structure is shown to converge across countries over time. This pattern remains similar even after controlling for macroeconomic and institutional factors, or for banking sector characteristics. It is not specific to a region, and appears to be similarly strong around the globe. However, financial structure convergence is somewhat weaker in the emerging market and developing economies relative to the advanced economies. Given the role of financial structure in economic performance, these findings have implications for macroeconomic and financial policies. Moreover, bridging cross‐country gaps in financial structure has potential consequences for income differences across countries.

The impact of debt service costs and public debt on private capital formation in South Africa

PurposeThe aim of this paper is to analyse the relationship between public debt, corporate debt service costs and private capital formation in South Africa.Design/methodology/approachTo capture the long-run characteristic of investment, the study adopts the Fully Modified Ordinary Least Squares approach and tests for cointegration using Hansen (1992)'s Parameter Instability test.FindingsWe find that private capital formation increases in domestic debt and decreases in external debt during the pre-crisis period. However, during the period post the Global Financial Crisis, we find evidence of domestic public debt crowding out private capital formation, whereas external debt crowds-in capital formation. Debt service costs are found to reduce investment due to the effect of the debt overhang throughout the period under analysis.Research limitations/implicationsThe paper has important implications for macroeconomic policy. In particular, there is need for deleveraging and allocation of a higher proportion of debt to public infrastructure expenditure which has complementary effects on private investment.Practical implicationsDebt overhang signal that South African firms could be over-leveraged, which hinders future growth prospects. Firms that face high levels of debt should consider debt restructuring.Originality/valueEmpirical studies undertaken to explore this relationship have yielded contradicting results suggesting that the relationship between public debt and private investment is heterogeneous depending on a given economy or prevailing macroeconomic environment. In particular, existing research does not provide evidence on whether recent increases in public debt in South Africa have led to crowding-in or crowding-out of private investment. This paper therefore contributes to empirical literature on the impact of public debt on private investment within a small open economy.

The regional disparity of per-capita CO2 emissions in China’s building sector: An analysis of macroeconomic drivers and policy implications

There are significant regional differences in CO2 emissions in China’s building sector. Analyzing and understanding this geographic inequality and its drivers is crucial for balanced regional development and greenhouse gas (GHG) emissions reduction. In this paper, we estimated the CO2 emissions of China’s building sector at the provincial level and then calculated the Theil Index of per-capita CO2 emissions generated from different building types. Based on these results, a Kaya identity was applied to analyze the drivers of the inequality in CO2 emissions across China. We found that the inequality index of the different types of buildings makes a significant difference. In general, the Theil Index for public buildings and urban buildings is higher than that for rural buildings. Income, energy intensity and energy mix are the principal drivers of regional disparity of per-capita emissions. Economic growth helps to narrow regional disparities for residential buildings, but its contribution is not significant for public buildings. For all building types, energy intensity is the primary contributor to emissions inequality, and the imbalanced implementation of energy efficiency policies is a leading factor. Energy mix plays an increasing role in the regional disparities of per-capita CO2 emissions, especially for rural buildings. Reducing these regional disparities is crucial to China’s goal of achieving peak GHG emissions and reaching carbon neutrality. This paper highlights the importance of per-capita CO2 emissions in formulating carbon peak planning, allocating regional emissions reduction targets, formulating building energy policies and allocating low-carbon resources.

Tapping Home Equity: Income and Spending Trends Around Cash-Out Refinances and HELOCs

Approximately two thirds of American families own a home and for most homeowners, their house is also their most important source of wealth. Homeowners are currently sitting on historically high levels of home equity and the potential withdrawal of this home equity has important implications for consumption at the macroeconomic and household levels. In this report, we examine the extent to which liquidating home equity boosts consumption, as well as how income dynamics around equity extraction may play a role in influencing households’ decision to draw from this source of wealth. Using loan-level servicing data from Chase mortgage customers combined with corresponding Chase deposit account data from 2012 to 2018, we create a sample of more than 50,000 homeowners who either obtained a cash-out refinance or drew on a home equity line of credit (HELOC). We find that for homeowners who cash-out refinanced, most refinanced into a lower interest rate but a higher monthly payment because of a larger loan balance. Also, after controlling for secular trends, homeowners who obtained a cash-out refinance had no change in income whereas homeowners who extracted equity via a HELOC experienced declining income. For both groups, consumption spiked considerably as soon as the liquidated equity flowed into the bank account but quickly settled to steady state-levels at a higher level, 5 percent and 7 percent above baseline for HELOCs and cash-out refinances, respectively. After one year, cash-out refinance homeowners spent 33 percent of their total equity extracted while those with a HELOC spent 47 percent overall. For both sample groups, these marginal propensities to consume (MPCs) were highest for younger homeowners and those with higher loan-to-values (LTVs). Taken together, these findings have important implications for macroeconomic and housing policies.

Business cycles and trends in Germany and Portugal: macroeconomic policy implications in the Euro Area

ABSTRACT We describe the neoclassical view of the business cycle by European Institutions in the Euro Area, and derive the stylized facts of business cycles and trends for Germany and Portugal in the period 1991–2018. The data are extracted from the European Commission’s AMECO database. To separate cycle and trend, we use the decomposition available in the AMECO database for the output, and the Hodrick-Prescott filter for the other variables. The results show that the amplitude of the business cycle and persistence of shocks are greater in Portugal than in Germany. They also show that the stylized facts of the business cycles of the two economies are quite different. Moreover, common shocks have asymmetric consequences. In the long run, there has been a convergence of inflation, general government structural balances, and real unit labour costs, but general government consolidated gross debt, fixed investment, and per capita potential GDP have been increasingly diverging, despite the behaviour of real wages and net exports in the two countries. Additionally, temporary shocks have permanent effects on the Portuguese economy. The results raise questions about the place-neutral macroeconomic policy enforced by the European institutions in the Euro Area, particularly in what concerns cohesion Member States.

Factors Affecting Real Estate Prices – Evidence From Macroeconomic Data In Vietnam

The real estate market is important in socio-economic life and is even more important for countries with open, transition, and developing economies like Vietnam. The price of real estate is an important factor in the market and is affected by many macroeconomic factors. Using quarterly data from the first quarter of 2005 to the fourth quarter of 2018, the authors construct realistic test pattern matching purposes, requires analysis and possibility of possible sources of data collected in Vietnam on the relationship between real estate price index and factors of economic growth, inflation, money supply and average long-term lending rate in the market. Experimental results demonstrate that these macroeconomic factors have a significant impact on real estate prices in Vietnam. From here, the article provides macroeconomic policy implications for the State of Vietnam in stabilizing real estate commodity prices in particular and developing the real estate market in general.

The Digital Transformation of Marketing: Impact on Marketing Practice & Markets

Abstract Digital technology technologies and business practices are expected to radically transform the competitive landscape and society. Central to changing business practices is how digital technologies are transforming the practice of marketing which in turn is transforming the nature of markets globally. This paper, guided by the literature concerning the wave of digital disruption brought about by new technology, changes in consumer demand and new forms of business competition discusses industry level and macroeconomic impact of the digital transformation of marketing. The drivers of the digital transformation in marketing, the critical role of understanding the consumer value chain relative to marketing practice and the impact of changing business practices on the larger economy. A new model developed by (Teixeira, 2019) to assess consumer demand is described as a marketing practice innovation that can be used to gain new insights for innovation and marketing. These innovations in gaining market insights and in marketing strategies are discussed regarding implications for industry and macroeconomic policy. The authors call for calls for further research using this methodology to better understand how digital disruption is likely to impact firm competitiveness and the nature of larger global economy.

The Macroeconomic Policy Implications of Digital Fiat Currency

In this paper, we articulate a vision for how widespread adoption of Digital Fiat Currency may affect the macroeconomic levers a nation has at its disposal to steady economic growth. We describe monetary (and certain fiscal) policy implications of a nation’s choice to incorporate Digital Fiat Currency into a country’s currency mix. Specifically, we argue that Digital Fiat Currency presents a future for payments system innovation, post–crisis monetary policy implementation, and regulation of the shadow banking sector. It leverages the strengths of existing banking operations and payments systems infrastructure, while addressing critical weaknesses in the structure of money markets, and the coordination process between fiscal and monetary policy. As contemporary understanding of central banking operations evolves, and new challenges emerge in monetary and fiscal policy, as well as macroprudential regulation, the basic innovation in payment instruments offered by a Digital Fiat Currency becomes increasingly relevant and necessary.

Controlling Shareholders and Corporate Governance: Complicating the Comparative Taxonomy

Corporate governance scholarship has shifted focus in recent years from hostile takeovers, which occur primarily in the held systems of the United States and the United Kingdom, to the comparative merits of the shareholder systems that are the norm most everywhere else in the world. In this emerging debate, the simple dichotomy between controlling systems and held systems that has largely dominated the discourse is too coarse to allow a deeper understanding of the diversity of ownership structures in different national capital markets and their policy implications. In this Article, Professor Ronald Gilson seeks to complicate the prevailing analysis of controlling shareholders and corporate governance by developing a more nuanced taxonomy of controlling structures and examining the implications of this view on our understanding of held and controlling systems. Development of a new taxonomy begins with recognition of the controlling tradeoff: focused monitoring in return for some private benefits of control and at a cost in speed of adaptation. Building from this tradeoff, this Article looks closely at two central features of a more complex taxonomy: the concepts of controlling shareholders and of private benefits of control. In particular, the framework highlights the value of distinguishing between efficient and inefficient controlling systems, and between pecuniary and nonpecuniary private benefits of control. Together, the two distinctions reframe the taxonomy of distribution to distinguish between regimes that support companies with a diversity of distributions and regimes that support only companies with a controlling shareholder. This Article concludes by examining potential macroeconomic effects and policy implications and calling for research under this new framework to further the debate on controlling systems. I. INTRODUCTION The big issue in corporate governance scholarship is changing. Over the last fifteen years, the academic and policy debate has focused on hostile takeovers. The terms and tenor of the debate in the United States are by now numbingly familiar. The same pattern is now observable in Europe, (1) where the tone of the debate, if not necessarily its politics, seems to have moderated a great deal. (2) As the issues surrounding hostile takeovers have clarified, attention has begun to shift from debating a phenomenon--observed largely in the United States and the United Kingdom, because only in those two jurisdictions is control of most public companies in the public float--to understanding the kind of control structure that dominates public corporations everywhere other than the United States and the United Kingdom. Put simply, public companies in the rest of the world typically have a single or group of shareholders with effective voting control, often but not invariably without corresponding equity holdings. Debate is now turning to the merits of these shareholder systems, both on their own terms and in comparison to the widely held shareholder systems of the United States and the United Kingdom. In this Article, I venture some early thoughts concerning how this inquiry might usefully be framed. The simple dichotomy between controlling systems and held systems that has largely dominated academic debate thus far seems to me much too coarse to allow a deeper understanding of the diversity of ownership structures in different national capital markets and of the policy implications of those structures. My goal here is to complicate the prevailing analysis of controlling shareholders and corporate governance by developing a more nuanced taxonomy of controlling structures, and then by examining the implications of this view on our understanding of held and controlling systems. …