Macroeconomic Outcomes Research Articles

Aggregate tone and gross domestic product

AbstractWe examine whether the change in earnings announcement textual tone, aggregated across individual publicly traded firms, helps predict gross domestic product (GDP) growth. The literature finds that changes in aggregate accounting earnings do help predict GDP growth, but only when aggregate earnings changes are negative. Because conservative accounting rules limit managers' ability to communicate positive news promptly, we examine the tone of quarterly corporate earnings announcements as a possible source of timely positive information provided by firms. We find that the change in aggregate tone in the earnings announcements from the same quarter in the previous year predicts one‐quarter‐ahead GDP growth, but only when the change is positive. Our study contributes to the literature by investigating the relation between aggregate corporate disclosure tone and macroeconomic outcomes.

IMPACT OF VOCATIONAL EDUCATION ON ECONOMIC GROWTH: AN ANALYSIS OF THE INDIAN ECONOMY

Vocational education can be seen as an important tool in leveraging India’s demographic dividend. Given the labor surplus in terms of the young population, it is important to examine how vocational education and training can serve as a critical driver of economic growth. This study aims at examining the impact of vocational education and training on economic growth in India, using the framework of the augmented Solow growth model by decomposing human capital into vocational education, along with primary, secondary and higher education. Using an ARDL model based on the annual data from 1990 to 1991 and 2019 to 2020, the study analyzes the short-run and long-run impact of vocational education. The results indicate that in the case of India, the impact of vocational education on economic growth is both a short-run and long-run phenomenon exhibiting a stable positive relation. Other control variables used in this study, such as Investment, Population, Openness and Inflation are found with a significant impact on economic growth. The study suggests that it is necessary to upgrade vocational education programs to create high-quality workers with a view to improving productivity and macroeconomic outcomes in India.

Labor market policies in high- and low-interest rate environments: Evidence from the euro area

Do labor market policies initiated in periods of loose monetary policy yield different outcomes from those introduced when monetary tightening prevails? Using data from 11 euro-area members up to 2010–and extending to 17 countries up to 2020–we analyze three labor market policies: replacement rates, spending on active labor market policies (ALMPs), and employment protection. We find that these policies deliver different macroeconomic outcomes in low- and high-interest rate environments. In particular, ALMPs reduce unemployment if implemented under a loose monetary policy but not otherwise, whereas higher employment protection delivers expansionary effects under a tight monetary policy. These findings highlight that the effectiveness of labor market policies is significantly influenced by the monetary policy environment, emphasizing the need for coordinated policy design. Methodologically, we contribute by proposing to average local projections using Mallow’s Cp criterion, allowing for inferences that are robust to mis-specification and accommodate non-linearities.

Understanding uncertainty shocks and the role of black swans

Uncertainty shocks can trigger business cycles, bank runs and asset price fluctuations. But how do those shocks translate into changes in beliefs and actions? What makes people suddenly become uncertain? This paper provides an explanation for subjective uncertainty shocks, estimated on real-time GDP data, that fits puzzling features of professional forecasts. The key ingredients are that agents do not know the true model governing the distribution of macroeconomic outcomes, but they believe that distribution to be potentially skewed. When agents estimate higher probabilities of extreme tail events, their uncertainty rises. Our estimates reveal that learning about probabilities of tail events – black swans – explains much of the fluctuations in subjective uncertainty.

Introducing sectoral bargaining in the United Kingdom: Why it makes sense and how it might be done

AbstractThis study argues that sectoral bargaining offers a flexible alternative to legal regulation in setting terms and conditions of employment, encourages participation and involvement, brings benefits to employers and improves productivity and performance. It also provides a platform for sector and cross‐sector social dialogue leading to improved policymaking and better macroeconomic outcomes. A statutory framework based on Wages Council‐type arrangements and advisory, conciliation and arbitration service Codes of Practice is recommended for the United Kingdom, with sectors in the ‘foundational economy’ being prioritised. Sector agreements need to be about much more than pay, though, if they are to realise their potential.

Ghana and the IMF: Policy shifts, economic bailouts and macroeconomic outcomes

Ghana has a long history of engagement with the IMF. Successive governments of Ghana have sought economic bailouts from the IMF due to worsening domestic macroeconomic stability. This paper examines Ghana’s historical engagement with the IMF and the associated macroeconomic outcomes, and offers lessons for economic restructuring and growth beyond the bailouts. The paper explores the common patterns of the key macroeconomic variables and possible latent causal effects. The results reveal intermittent and short-term effects of the IMF programs. The bailouts often have a short-term impact on macroeconomic stability and growth, but the effects are unsustainable in the long term, especially after the IMF program ends.

Capturing the Value of Vaccination within Health Technology Assessment and Health Economics-Practical Considerations for Expanding Valuation by Including Key Concepts.

Following the development of a value of vaccination (VoV) framework for health technology assessment/cost-effectiveness analysis (HTA/CEA), and identification of three vaccination benefits for near-term inclusion in HTA/CEA, this final paper provides decision makers with methods and examples to consider benefits of health systems strengthening (HSS), equity, and macroeconomic gains. Expert working groups, targeted literature reviews, and case studies were used. Opportunity cost methods were applied for HSS benefits of rotavirus vaccination. Vaccination, with HSS benefits included, reduced the incremental cost-effectiveness ratio (ICER) by 1.4-50.5% (to GBP 11,552-GBP 23,016) depending on alternative conditions considered. Distributional CEA was applied for health equity benefits of meningococcal vaccination. Nearly 80% of prevented cases were among the three most deprived groups. Vaccination, with equity benefits included, reduced the ICER by 22-56% (to GBP 7014-GBP 12,460), depending on equity parameters. Macroeconomic models may inform HTA deliberative processes (e.g., disease impact on the labour force and the wider economy), or macroeconomic outcomes may be assessed for individuals in CEAs (e.g., impact on non-health consumption, leisure time, and income). These case studies show how to assess broader vaccination benefits in current HTA/CEA, providing decision makers with more accurate and complete VoV assessments. More work is needed to refine inputs and methods, especially for macroeconomic gains.

Systems dynamics and casual configurations: Using dynamic pattern synthesis for macroeconomic comparative research

Dynamic Pattern Synthesis (DPS) provides a new longitudinal method for evaluating the impacts of macroeconomic and public policy interventions. Situated within complexity theory and critical realism, it has evolved from the established methods of Cluster Analysis and Configurational Modelling approaches. Dynamic Pattern Synthesis identifies case convergence and divergence (using quantitative techniques), while remaining close to the qualitative uniqueness of each case. In this paper, the DPS approach is used to consider macroeconomic convergence across Sub-Saharan Africa during the Millennium Development Goals, and the possible impacts of IMF interventions in stimulating long-term macroeconomic outcomes. The findings reveal a high degree of economic instability experienced across the region and varying responses to an external shock. The importance of ‘outliers’ and inconsistency in country convergence are also observed. The DPS method highlights the importance of individual country experiences in relation to external shocks. When factoring in IMF interventions, the findings highlight multiple paths to a given policy outcome, rather than a single optimal economic strategy. This opens up the debate on policy issues associated with economic complexity, including how best to create an overall environment of stability that might promote convergence and reduce the instability that undermines planning and investment.

Real-time nowcasting the monthly unemployment rates with daily Google Trends data

Policymakers often have to make decisions based on incomplete economic data because of the usual delay in publishing official statistics. To circumvent this issue, researchers use data from Google Trends (GT) as an early indicator of economic performance. Such data have emerged in the literature as alternative and complementary predictors of macroeconomic outcomes, such as the unemployment rate, featuring readiness, public availability and no costs. This study deals with extensive daily GT data to develop a framework to nowcast monthly unemployment rates tailored to work with real-time data availability, resorting to Mixed Data Sampling (MIDAS) regressions. Portugal is chosen as a use case for the methodology since extracting GT data requires the selection of culturally dependent keywords. The nowcasting period spans 2019 to 2021, encompassing the time frame in which the coronavirus pandemic initiated. The findings indicate that using daily GT data with MIDAS provides timely and accurate insights into the unemployment rate, especially during the COVID-19 pandemic, showing accuracy gains even when compared to nowcasts obtained from typical monthly GT data via traditional ARMAX models.

Constructing density forecasts from quantile regressions: Multimodality in macrofinancial dynamics

SummaryQuantile regression methods are increasingly used to forecast tail risks and uncertainties in macroeconomic outcomes. This paper reconsiders how to construct predictive densities from quantile regressions. We compare a popular two‐step approach that fits a specific parametric density to the quantile forecasts with a nonparametric alternative that lets the “data speak.” Simulation evidence and an application revisiting GDP growth uncertainties in the United States demonstrate the flexibility of the nonparametric approach when constructing density forecasts from both frequentist and Bayesian quantile regressions. They identify its ability to unmask deviations from symmetrical and unimodal densities. The dominant macroeconomic narrative becomes one of the evolution, over the business cycle, of multimodalities rather than asymmetries in the predictive distribution of GDP growth when conditioned on financial conditions.

How to Construct Nationally Representative Firm-Level Data from the Orbis Global Database: New Facts on SMEs and Aggregate Implications for Industry Concentration

We construct nationally representative firm-level longitudinal data for European countries using financial statements from the Orbis database. We validate our data by comparing its coverage and firm size distribution to official statistics. We showcase two applications to show the importance of firm representativeness in understanding macroeconomic outcomes. First, we show that small and medium-sized firms account for a large share of aggregate economic activity. Second, we document that firm representativeness is important for calculating industry concentration trends over time as the share of economic activity accounted by top firms in an industry changes with the firm samples used. (JEL C81, D22, G30, L11, L25, L60)

Unravelling Structural Underdevelopment: Is Governance Quality the Key?

Structural underdevelopment remains a critical economic challenge globally. Despite significant advancements, many countries and regions continue to face developmental hurdles due to historical and systemic factors. Among the myriad of factors, the quality of governance has garnered extensive focus for its role in economic outcomes. This study aimed to investigate the relationship between governance quality and economic performance of the countries, guided by institutional theory. Employing data from 197 countries over 1996 to 2022, sourced from the World Bank and the World Governance Indicators, we applied fixed effects and random effects. In addition, the Hausman test was applied in order to initiate the choice between fixed and random effect models. Furthermore, the data was also analysed through descriptive statistics and quantile regression for detailed revelations. Initial findings indicated considerable disparities in governance quality and GDP per capita among income groups. The beta coefficients from our regression analysis elucidated the significance of governance on economic outcomes. Specifically, Voice and Accountability implied a non-positive relation with GDP per capita, whereas Regulatory Quality and Rule of Law exhibited significant positive impact. Stronger positive relationships were evident in the random effects model, reinforcing the connection between governance improvements and economic growth. This research aimed to inform public policy in Pakistan and similar contexts, highlighting how governance quality can affect macro-economic outcomes.

Extrapolative Uncertainty and Household Economic Behavior

We examine the uncertainty in households’ expectations regarding macroeconomic outcomes, namely inflation and the rate of nationwide home price growth. We document that people extrapolate from the instability of their personal and local environment when assessing the future volatility of these macroeconomic variables. Consequently, there are within-person spillovers in subjective uncertainty regarding different economic outcomes. This extrapolative behavior is more pronounced among lower-numeracy individuals, and it persists throughout the business cycle. People with more uncertain macroeconomic expectations are more likely to engage in precautionary behaviors regarding consumption and equity market exposure and are more concerned about credit market access. This paper was accepted by David Simchi-Levi, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.00820 .

Using The Federal Reserve’s Balance Sheet to Predict Macroeconomic Outcomes

This study investigates whether the U.S. Federal Reserve’s balance sheet can be used to predict macroeconomic outcomes. The Federal Reserve writes its own accounting standards, and I recast portions of the Federal Reserve’s weekly balance sheet as if it more closely followed Generally Accepted Accounting Principles. Specifically, I estimate the fair value of the Federal Reserve’s U.S. Treasury notes and bonds and calculate the associated unrealized gains and losses. I demonstrate that unrealized gains (losses) on the Federal Reserve’s U.S. Treasury notes and bonds are associated with lower (higher) one-quarter ahead inflation and real gross domestic product growth. Additionally, I show that modifying proxies for macroeconomic news to incorporate the predictive value of unrealized gains and losses on the Federal Reserve’s U.S. Treasury notes and bonds helps explain equity returns around the release of macroeconomic data.

From parameters to policies: sensitivity analysis and fiscal and monetary reactions

PurposeThis paper seeks to explore the sensitivity of these parameters and their impact on fiscal policy outcomes. We use the existing literature to establish possible ranges for each parameter, and we examine how changes within these ranges can alter the outcomes of fiscal policy. In this way, we aim to highlight the importance of these parameters in the formulation and evaluation of fiscal policy.Design/methodology/approachThe role of fiscal policy, its effects and multipliers continues to be a subject of intense debate in macroeconomics. Despite adopting a New Keynesian approach within a macroeconomic model, the reactions of macroeconomic variables to fiscal shocks can vary across different contexts and theoretical frameworks. This paper aims to investigate these diverse reactions by conducting a sensitivity analysis of parameters. Specifically, the study examines how key variables respond to fiscal shocks under different parameter settings. By analyzing the behavioral dynamics of these variables, this research contributes to the ongoing discussion on fiscal policy. The findings offer valuable insights to enrich the understanding of the complex relationship between fiscal shocks and macroeconomic outcomes, thus facilitating informed policy debates.FindingsThis paper aims to investigate key elements of New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models. The focus is on the calibration of parameters and their impact on macroeconomic variables, such as output and inflation. The study also examines how different parameter settings affect the response of monetary policy to fiscal measures. In conclusion, this study has relied on theoretical exploration and a comprehensive review of existing literature. The parameters and their relationships have been analyzed within a robust theoretical framework, offering valuable insights for further research on how these factors influence model forecasts and inform policy recommendations derived from New Keynesian DSGE models. Moving forward, it is recommended that future work includes empirical analyses to test the reliability and effectiveness of parameter calibrations in real-world conditions. This will contribute to enhancing the accuracy and relevance of DSGE models for economic policy decision-making.Originality/valueThis study is motivated by the aim to provide a deeper understanding of the roles macroeconomic model parameters play concerning responses to expansionary fiscal policies and the subsequent reactions of monetary authorities. Comprehensive reviews that encompass this breadth of relationships within a single text are rare in the literature, making this work a valuable contribution to stimulating discussions on macroeconomic policies.

Consumption Emulation and Demand Regimes: An Inclusive Modeling Approach

ABSTRACT Personal income distributions robustly follow a two-class structure, with an exponential bulk of labour income accruing to the lower 95 - 99 % population share and an upper Pareto tail of the 1 - 5% richest, where capital income is concentrated. The implications of this regularity for macroeconomic outcomes, especially aggregate consumption, are not yet fully understood, though. We introduce this two-class structure into a Post-Keynesian consumption model with workers and capitalists corresponding to the two classes within the personal distribution. Agents consume according to idiosyncratic and social motives. Status consumption is microfounded within a perception network that replicates empirically observed inequality and social self-perceptions. Our findings indicate that the non-market interactions in perception networks are potentially highly relevant for aggregate outcomes and that they can shed some light on recent puzzles in the Post-Keynesian literature on growth regimes. In particular, we show how network segregation can explain differences in the degree of ‘wage-ledness’ of aggregate consumption. Aggregate representations of consumption might thus be misleading. Empirical studies should therefore take the regularities both in the income distribution as well as social network topologies into account.

Choosing the European fiscal rule

ABSTRACT In order to quantitatively assess the potential effects from the ongoing transformation of the fiscal framework of the European Union, we evaluate the economic and public finance stabilization properties of two benchmark fiscal rules using a New Keynesian small open economy model. If these fiscal rules are implemented one at a time, having just an expenditure growth rule tends to yield more stable macroeconomic outcomes but more volatile public finances, as compared to having only a structural balance rule. Much of the quantitative differences in relative volatilities can be accounted for by using a modified public expenditure definition in the expenditure growth rule, in particular the removal of debt service payments. The expenditure growth rule with a strong-enough debt anchor strikes the balance between the short-term macroeconomic stability and the medium-term public debt convergence. There is a welfare gain for households from having only an expenditure growth rule.

Financial development and economic growth: Exploring the impact of financial systems, stability, and institutional quality on economic performance

This study investigates the relationship between financial development and economic growth in Albania from 2012 to 2022, emphasizing how various aspects of financial development — particularly financial inclusion, stability, and institutional quality — impact economic performance. Employing quantitative analysis of secondary data, the research explores the effects of key financial indicators such as banking services efficiency, stock market development, and access to credit on macroeconomic outcomes. Findings reveal that significant enhancements in financial systems correlate positively with economic growth, highlighting the crucial mediating roles of improved financial inclusion, market stability, and governance (Demirgüç-Kunt et al., 2018). These results underscore the importance of robust financial infrastructure in fostering sustained economic development, especially in transitional economies like Albania. By providing empirical evidence from a unique transitional context, this study contributes to the literature by detailing specific mechanisms through which financial development can facilitate economic growth. It suggests that policymakers focus on strengthening financial frameworks to optimize economic outcomes. Future research could broaden these insights by incorporating qualitative methods and additional financial indicators. This research holds relevance for economic strategists and policymakers aiming to enhance economic growth through targeted financial sector improvements.

The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory

The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory

The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory

The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory