Level Of Real Output Research Articles

Wage Rigid: The Relationship between Real Output and Wage with or without Monetary Policy

The relationship between real wage and output is a major area of interest within field of both macroeconomic and microeconomic. Labour market has intimate relationship with wage determination, and the wage level, representing individual’s earning and in turn affect level of poverty and living standard to some extent. This paper uses a series of regression econometric models to examine the relationship between real wage and real output level. This paper also assesses impact of different monetary policy on this relationship, either under interest target or free interest rate. Additionally, results from the economic models would be used to compare with that from Keynesian theory. Identify the relationship between wage and output would be helpful for the government to make policy decision. In a way to boost economic growth sustainably and raising living standard.

Mechanical Analyses and Derivations of Money Velocity


 
 
 Abstract. The equation of exchange is derived from a standpoint encompassing the physics and economics thereof, whereby the maximisation of a money value function, increasing in real output and decreasing in the real money supply, while accounting for time and space, subjected to a money constraint, at the macroeconomic level, gives rise to an optimal level of real output thereby, expressing the liquidity demand coefficient as the inverse quotient of space over time. The fusion of such a liquidity demand coefficient expression with the money constraint, which is the equilibrium Cambridge equation, in turn gives rise to an equation for space, being the position of money, whose differentiation is precisely instantaneous money velocity and thence the exchange equation as presented by Fisher. The present analysis also derives money position on account of non-constant instantaneous money velocity as instantiated by Fisher, advancing a framework for the macroeconomy’s general money value function and money constraint in the process. It likewise advances simulations of non-constant average and instantaneous money velocity, with a particular application to a stylised closed macroeconomy. It finally proceeds to remodel instantaneous money velocity through the use of ordinary differential equations (ODEs) for the money equations of motion, both generally, by letting the sum of the three equal a corrected exponential random walk with drift, and through a money force model, of free accumulation with financial assets resistance. This work thus remarks in sum that money velocity as customarily calculated, taught and understood is not univocal.
 
 

TRILEMMA POLICY PATHS AND REAL OUTPUT NEXUS IN NIGERIA

This study examined the nexus between the policy trilemma and its effects on real out-put in Nigeria. The study employed annual data spanning from 1990 to 2017. Interna-tional reserve has been included in the model due to its importance as noted in the literature. Following Hsing (2012) and Ajogbeje, Adeniyi and Egwaikhide (2018), Vector Autoregression (VAR) model was employed and specifically Autoregressive Distributed Lag (ARDL) bound test for cointegration was used. Data for the study was obtained from Aizenman, Chinn and Ito (2013), CBN Statistical Database and IMF International Financial Statistics Database. The study found a mix significant results between exchange rate stability and real GDP. The study further revealed that both monetary policy independence and capital account liberalization independently exert a significant and positive impact on real GDP but interactively they significantly re-duce the level of real output in the economy. The nexus between international reserve and real GDP was positive and significant. Therefore, the study recommends that for Nigeria to feel the positive impact of her trilemma choice on the economy, policy mak-ers should strive to pursue the policy combination consistently and buffered the econ-omy with a robust external reserve to cushion the effects of abrupt change in capital flow and exchange rate shocks.

Do Real Output and Renewable Energy Consumption Affect CO2 Emissions? Evidence for Selected BRICS Countries

Climate change is one of the most important global problems faced by the international community. It is generally believed that increasing the consumption of renewable energy is an effective measure to promote CO2 emissions reduction. Therefore, renewable energy consumption has become one of the best alternative strategies for sustainable development. Based on this, this paper employs the 3SLS model to conduct an empirical study on the relations among real output, renewable energy consumption, and CO2 emissions of BRICS countries (except Russia) in 1999–2014. The empirical results support, for BRICS group, the complete tri-variate relationships (energy-output-emission nexus), and renewable energy had a significant positive impact on the real output, and vice versa. Besides, compared with other countries, Brazil also has the same tri-variate relationships as BRICS group. However, China has no relationship from real output to renewable energy consumption and from real output to CO2 emissions; India does not have the relationship from real output to renewable energy consumption and the bilateral relationship between real output and CO2 emissions; the relationship between variables in South Africa only occurs in the energy output chain. Finally, according to the estimation results of the simultaneous equation, the BRICs governments should consider the importance of human capital level and financial development when controlling the real output level and pollution. In addition, it should be noted that effective energy policies help to reduce carbon dioxide emissions without compromising real output.

ECONOMIC GROWTH, ENERGY CONSUMPTION AND HUMAN CAPITAL FORMATION: IMPLICATION FOR KNOWLEDGE-BASED ECONOMY

This study examines the relationship between technology, human capital and economic growth and also attempts to establish their implications on knowledge based economy in Nigeria. The data used for the study are from secondary sources while the new growth model was also adopted. The dependent variable in the model is the level of real output while the explanatory variables are gross capital formation and government expenditure on education. The result of the causality test shows that is a uni-directional relationship running from gross capital formation and real output, human capital formation and real output growths do not Granger cause each other while causality runs from human capital to capital formation and vice versa. The implication of the result; the increase in economic growth has not improve the rate of capital formation in Nigeria. The study concluded that Nigeria has been slow to identify the strands of global knowledge due to the following: weak institutions; limited awareness and disincentives preventing them from taking the root to the knowledge and information based- economy. Based on the findings the study recommended; strategies in which education can be incorporated into the growth system. Research and development should be encouraged as well and polices that promote output through savings.

Asymmetric effects of inequality on real output levels of the United States

The existing literature on the short- and long-run impacts of economic growth on income inequality indicates that positive and negative output shocks have worsened the income distribution in the United States. In this paper, we report our empirical examination of the opposite; that is, the impact of positive and negative income inequality shocks on the real output levels. Using the same time-series data, over the period 1917–2012, in a more comprehensive manner, by employing six measures of income distribution, we examined the impact of an increase/decrease in income inequality on economic growth, using the NARDL approach. The results provide evidence in support of a long-run asymmetric impact between income inequality and the real output levels, since the long-run coefficients of positive changes have positive signs, while the signs of those of negative changes are negative, indicating that a decrease or an increase in income inequality improves the real output level in the US.

Forward Guidance under Imperfect Information: Instrument Based or State Contingent?

I study the optimal type of forward guidance in a flexible-price economy in which both the private sector and the central bank are subject to imperfect information about the aggregate state of the economy. In this case, forward guidance changes the private sector?s expectations about both future monetary policy and the state of the economy. I study two types of forward guidance. The first type is instrument based, in which case the central bank commits to a value of the policy instrument. The second type is state contingent, in which case the central bank reveals its imperfect information and commits to a policy response rule. The key message is that forward guidance allows the central bank to reduce ex-ante price fluctuations by making the optimal trade-off between price deviations after the actual shock and after the noise shock. However, this benefit comes with a cost under the instrument-based forward guidance; that is, since firms perfectly know the change in monetary policy and prices are fully flexible, the real output level becomes independent of monetary policy. Consequently, while state-contingent forward guidance guarantees ex-ante welfare improvement, instrument-based forward guidance improves ex-ante welfare only if the central bank?s information is sufficiently precise.

Financial development, economic growth and convergence clubs

ABSTRACTTo study the role of financial development in economic growth, we apply an array of convergence tests designed to capture nonlinear transitional dynamics to real outputs per capita. Strong evidence of multiple convergence clubs is observed, implying that the clubs are formed based on the initial level of real output per capita and average growth rate. Our empirical results show that the stage of economic growth of each country plays an important role for the composition of the convergence clubs. Furthermore, financial development emerges to be a significant determinant, albeit plays differently in the economic growth of each convergence club.

Algeria and the natural resource curse: oil abundance and economic growth

In this paper, we examine the interaction between oil exports’ revenues and long-run economic growth in Algeria over the period 1979–2013. Advanced econometric procedures including the cointegration VARX (VAR with exogenous variables) model, over-identifying restrictions, bootstrapping, persistent profiles and Generalized Impulse Response Function are utilized in the empirical analysis. The results show a strong and positive association between oil revenue and long-run economic growth, but negative linkages between the volatility of oil revenues and growth in Algeria. Our impulse response analysis also provides evidence that a positive shock in oil revenues increases the level of real output, and appreciates the real exchange rate.

Barriers to expansive fiscal policy against the background of the macroeconomic situation of the euro area

Aim: In the article, the Author analyses the possibilities of instituting an expansive fiscal policy in individual euro zone countries. In addition, barriers to effective transmission of fiscal expansion to the level of real output in the euro zone economy will be identified against the background of economic theory. Results: The Author also show how the implementation of different strategies of monetary policy and exchange rate policy affect the effectiveness of the growth of the budget deficit in its impact on the economic growth rate.

Aggregate Production Function, Its Determinants and Their Impacts on Aggregate Output: Case of Bahrain

Aggregate Production Function, Its Determinants and Their Impacts on Aggregate Output: Case of Bahrain Ibrahem H. Alezzee Abstract In this paper an attempt is made to examine and analyse the influence of a few determinants of the level of real output (RGDP) of Kingdom of Bahrain, using Aggregate Cobb-Douglas Production Function (APF). Besides the inputs of labor (LF) and capital accumulation (GCF), two other factors believed to have essential impacts on the level of aggregate output, namely expenditure on educating (EDUR) and life expectancy (LIFEXP) are added to the traditional Cobb-Douglas production function as determinants of real output. Time series data on all the relevant variables have been used and tested for stationarity and association among them, using Augmented Dickey-Fuller test of unit root and Co-integration test. The null hypothesis of unit root in Augmented Dickey-Fuller test is rejected and we conclude that the data are stationary at first difference. Co-integration test indicates only long-run associations amongst the variables in the analysis. VAR technique is used to examine the variability of the RGDP of Bahrain. Important finding of this analysis is that all inputs – capital accumulation (GCF), labor force LF), expenditures on education (EDUR) and life expectancy - have significant impact on the level of GDP, but in varying degrees. LF has the most powerful influence while GCF has the least as suggested by the elasticity of output with respect to labor force and capital formation. Moreover, increasing return to scale is indicated. Full Text: PDF DOI: 10.15640/jibe.v2n3a6

Government Expenditure on Human Capital Development: Implications for Economic Growth in Nigeria

This study examines the relationship between human capital development efforts of the Government and economic growth in Nigeria. It seeks to find out the impact of government recurrent and capital expenditures on education and health in Nigeria and their effect on economic growth. The data used for the study are from secondary sources while the augmented Solow model was also adopted. The dependent variable in the model is the level of real output while the explanatory variables are government capital and recurrent expenditures on education and health, gross fixed capital formation and the labour force. The result shows that there exists a positive relationship between government recurrent expenditure on human capital development and the level of real output, while capital expenditure is negatively related to the level of real output. The study recommends appropriate channeling of the nation’s capital expenditure on education and health to promote economic growth.

Changes in the Business Cycle of the Korean Economy: Evidence and Explanations

With a relatively simple quantitative method, this study comprehensively analyzes the characteristics related to business cycles represented by macroeconomic variables of Korea since 1970. This empirical analysis deals with roughly following three topics: How to identify cyclical component with respect to trend; with what characteristics and how the economic variables of each sector move with in the phases of business cycle, and; whether there are signs of a structural change in the phases of business cycle. Section 2 discusses how to identify trends and cycle components, the basis assumption for the analysis of business cycle. Like the Korean economy, where a relatively high growth rate has been maintained, it is appropriate to determine its economic recession based on the fall in the growth trend, not in the absolute level of real output. And, it is necessary to apply the concept of growth cycle against a traditional concept of business cycle. Accordingly the setting of growth trend is of preliminary importance in identifying cyclical fluctuations. The analysis of Korea’s GDP data since 1970, the decomposition of trends and cycles through the Band-pass filter is found to appropriately identify the actual phases of busyness cycle. Section 3 analyzes what particular relationship various economic variables have with output fluctuations during the phases of economic cycle, using the corss-correlation coefficients and prediction contribution. Section 4 monitors the stability of the phases of Korea’s business cycle and quantitatively verifies whether there is a structural break, and then reviews the characteristics of variations in each sector. And, stylized facts observed through these studies are summarized in the conclusion. The macroeconomic stability of Korea, in particular, is found to continue to improve since 1970, except for the financial crisis period. Not only that, it is found that its volatility of economic growth rate as well as inflation have been reduced gradually. Meanwhile, until recently since 2000, the volatility in domestic demand has remained stable, while that in exports and imports has been increased slightly. But, in an over all perspective, Korea’s business cycle variation is on the decline due to shorter response period to shocks and the formation of complementary relationship among economic sectors.

A Primer on the Optimal Monetary Policy Rule: The Case of US*

This paper examines the optimal monetary policy rules in a business cycle model with nominal rigidities. Optimality is measured in terms of a utility-based welfare metric, and the welfare effects of the non-linear dynamics of the model are captured by a quadratic approximate solution method. The welfare maximizing rule among a class of Taylor-style rules is characterized by i) super-inertial adjustments in interest rates; ii) strong short run anti-inflation coupled with long run deflation, and iii) increasing interest rates in response to higher real output level and growth.

Electricity consumption-growth nexus: Evidence from panel data for transition countries

This paper investigates the long-run relationship and causality issues between electricity consumption and economic growth in 15 Transition countries (Albania, Belarus, Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Macedonia, Moldova, Poland, Romania, Russian Federation, Serbia, Slovak Republic and Ukraine) by using the Pedroni panel cointegration method for the 1990–2006 period. Results suggest that the Pedroni panel cointegration tests do not confirm a long-term equilibrium relationship between electricity consumption per capita and real GDP per capita. Moreover, since no cointegration was found, error-correction mechanisms plus causality tests cannot be run for further steps in the long-term to investigate the causality between electricity consumption and economic growth. Overall, it can be said that the electricity consumption related policies have no effect or relation on the level of real output in the long run for these countries. As a conclusion, the literature has conflicting results and there is no consensus either on the existence or the direction of causality between electricity consumption and economic growth. Thus, the findings of this study have important policy implications and it shows that this issue still deserves further attention in future research.

The equity premium in Brock's asset pricing model

In this paper we combine dynamic programming methods with projection methods for solving stochastic growth models. As an application of these methods, we solve Brock's asset pricing model with a variety of parameterizations. We focused on finding parameterizations that result in an equity premium that is high relative to the variation in consumption. We show (both analytically and numerically) that the equity premium can be higher in a production based asset pricing model than it is in the consumption based asset pricing model, even when the real output level is the same in both models.

International Evidence on the Long-Run Impact of Inflation

International Evidence on the Long-Run Impact of Inflation David E. Rapach Abstract In this paper, I use a structural vector autoregression framework to analyze the effects of a permanent change in inflation on the long-run real interest rate and real output level in 14 industrialized countries. Long-run monetary superneutrality is rejected for all 14 countries using annual data: the results indicate that a permanent increase in inflation lowers the long-run real interest rate in each country; a permanent increase in inflation also increases the long-run real output level in a number of countries. Long-run monetary superneutrality is also rejected for four out of the five countries examined using quarterly data. Under long-run monetary superneutrality (LRSN), a permanent increase in the growth rate of the money stock has no real effects—apart from real balances—in the long run. In particular, a permanent increase in the growth rate of the money stock leads to an equal increase in the long-run inflation rate, but leaves the long-run real interest rate, capital stock, and real output level unchanged, as in, for example, the simple classical and well-known Sidrauski (1967) models. While there is general agreement that permanent changes in inflation arise solely from equal permanent changes in money growth,1 a substantial body of theory suggests that permanent changes in money growth and thus inflation can alter the steady-state values of the real interest rate, capital stock, and real output level. In such models, money is not superneutral in the long run.2 In the full-employment model of Mundell (1963), a permanent increase in inflation lowers the real interest rate if saving depends on real money balances. Higher inflation raises the nominal interest rate and reduces wealth (via a lower demand for real money balances); saving increases and the real interest rate must fall to [End Page 23] restore goods market equilibrium.3 In the augmented Solow growth model of Tobin (1965), a permanent increase in inflation leads agents to substitute capital holdings for real money balances in their portfolios. This reallocation increases the steady-state capital stock and real output level and lowers the long-run real return to capital, which equals the real interest rate in equilibrium. The negative long-run real interest rate response and positive long-run real output response to a permanent increase in inflation is known as the Mundell-Tobin effect. More recently, overlapping generations models have been used to demonstrate that the Mundell-Tobin effect emerges when agents are explicitly optimizing; see, for example, Weiss (1980) and Espinosa-Vega and Russell (1998).4 Stockman (1981) demonstrated the possibility of a reverse-Mundell-Tobin effect in an inflation-tax model. In his explicitly optimizing model with a representative infinitely lived agent, a permanent increase in inflation leads to a lower steady-state capital stock and real output level and a higher long-run real interest rate due to a cash-in-advance constraint on investment spending.5 Given the ample cause to question LRSN on theoretical grounds, it is important to evaluate its empirical relevance. To this end, I estimate the long-run real interest rate and real output responses to a permanent increase in inflation for 14 industrialized countries using annual data from the postwar era. Estimates of the long-run responses are obtained through a trivariate structural vector autoregression (VAR) model in the inflation rate, nominal interest rate, and real output level. Inflation, preference, and technology structural shocks are identified in the VAR using long-run restrictions motivated by standard neoclassical theory. This paper extends the recent studies of King and Watson (1997), Weber (1994), Bullard and Keating (1995), and Koustas and Serletis (1999). These studies employ bivariate VARs to estimate the long-run real interest rate response or the long-run real output response to a permanent increase in inflation. Canova (1994) observes that it is more satisfactory to analyze these responses in a single model, as is allowed under the present paper's trivariate framework.6 Importantly, the present framework identifies and thus controls for two nonmonetary structural shocks with potentially significant real effects—preference and technology shocks—when analyzing the...

The economic impacts of trade liberalization and factor mobility: the case of the Philippines

This study uses the Global Trade Analysis Project (GTAP) model and database to investigate the effects of trade policies in conjunction with factor mobility on the Philippines economy. A total of six experiments were conducted: three trade strategies, each with two degrees of factor mobility. The conclusions are: (1) factor mobility results in a more efficient use of endowments in the economy; (2) lowering trade barriers shifts the pattern of production toward the most competitive sectors; and (3) lowering trade barriers leads to a more efficient distribution of endowment factors among sectors of production, which in turn results in a higher level of real output.

The long-run relationship between inflation and output in postwar economies

We investigate the relationship between inflation and real output in a large sample of postwar economies. Our methodology is to use a structural vector autoregression to estimate the response of the level of real output to permanent inflation shocks separately for each country. We find that a permanent shock to inflation is not associated with a permanent movement in the level of real output for most countries in our sample. The main exceptions are certain low inflation countries, in which permanent inflation shocks permanently increase the level of output. We also find that permanent inflation shocks do not permanently influence real output growth rates in our sample.

Money, Income, and Causality: Some Evidence from Pakistan

The role of money in determining the level of economic activity has long been debated among economists. The classical economists were of the view that the changes in the money supply can only affect the monetary variables like the price level and nominal wage rates but cannot influence real output. J. M. Keynes and his followers asserted that changes in money supply do influence the level of real output through their effect on the rate of interest and thereby changing investment expenditure. However, by introducing the idea of a liquidity trap and by making investment as highly interest inelastic, Keynes did not assign any active role to money. Milton Friedman and his followers, known as the Monetarists, raised the slogan that "money does matter" and thus tried to assign a dominant role to money supply in determining the level of economic activity. They assert that changes in money supply have a dominant influence on changes in nominal income. They are of the view that in the short run money does influence real output and employment and thus money is the dominant factor causing cyclical movements in output and employment. However, they believe like the classical economists, that in the long run the changes in money primarily influence the price level and other nominal magnitudes.