Major Macroeconomic Variables Research Articles

Are the Effects of Fiscal Changes Different in Times of Crisis and Non-Crisis? The French Case

This paper shows that the impact of changes in budgetary variables on major macroeconomic variables varies in sign and magnitude in times of crisis and non-crisis in France. We find that these nonlinearities are both frequent (as they exist on all behaviors analyzed: real GDP, private consumption, business investment and private employment) and significant. For this, we estimate time-varying probability Markov-switching models (TVPMS) in order to take into account two budgetary regimes, on the one side periods of severe recessions or depressions (crises), and, on the other side normal periods (expansions or moderate recessions). These two regimes are identified endogenously, so that we do not need to preliminary separate episodes of huge contractions and expansions of the business cycle. Further, we are able to identify the variables influencing the probability of a switch between regimes. Searching for nonlinear fiscal impacts in the form of regime-switching effects, we assume temporary variations in the budgetary variables, both on the revenue side (taxes on consumption, on firm's profit, lump sum transfers) and on the expenditure side (traditional public boosts of aggregate demand, transfers, and subsidies). Our results show that if one considers the aggregate GDP, public expenditure has a stronger impact during crisis and the expenditure multiplier is greater than the tax multiplier. Also, when households are sensitive to the unemployment situation, tax cuts do not increase consumption spending, while transfers are playing a significant role. On the firms side, our results show that direct taxes changes induce a (stimulus) effect in the investment rate only during non-crisis periods. A rise in subsidies has a negative influence during crises. Finally, the estimates suggest that employment policies should be asymmetric: fiscal measures aiming at reducing unit labor costs could be efficient in good times, while an increase in public employment is preferable during crisis.

Dynamic Relationship Between Energy and Economic Growth: Evidence from D8 Countries.

Energy sector has a vital influence on an economy, on both demand and supply sides. Therefore, energy production and consumption bear great importance for the developing world. The oil embargo of 1970‘s and its impact on major macroeconomic variables throughout the world attracted many economists to examine the relationship between energy and economic prosperity. The researchers have been unable to establish a definitive direction of causality between the two variables. The purpose of this study is to empirically investigate the dynamic relationship between energy use and economic growth in the D8 countries. The evidence gathered through application of VAR Granger Causality, Johansen Cointegration and VECM proves existence of short-run and long-run correlation between energy use and economic development in all countries. The results supported either uni-directional or bi-directional causality in the D8 countries except for Indonesia in short-run where non-causality was established between the two variables. JEL classifications: C22; Q43. Keywords: Energy Use, Economic Growth, D8, VAR Granger Causality, Cointegration, VECM

The trend and growth implications of bank recapitalization in Nigeria

One of the major macroeconomic variables that compliment bank performances is availability of capital. Economic theories show that inadequate capital contributes to bank failures and retards economic growth. This study however, examined the trend and the growth implications of bank capitalization in Nigeria. The secondary data used for the study were processed using sample test technique for difference between two means and the E-view for windows electronic packages. The test of difference of mean helped us to compare the means of the variables before and after recapitalization to see if there is any significant difference between the two periods. The findings showed that there is a significant difference between the two means and hence the two periods. The result indicated that post recapitalization mean at 21.58 is higher than the pre recapitalization mean of 15.09, implying that banks are more adequately capitalized and less risky after the programme. This result also indicated that recapitalization has low but significant influence on the growth of Nigerian economy compare to other variables in the model. The study strongly supported the need for the government to sustain the recapitalization policy. Key words: Bank, recapitalization, economic growth, Basel agreement, globalization.

Aggregate Comovements, Anticipation, and Business Cycles

This paper shows that negative comovements between major macroeconomic variables at business-cycle frequencies are commonly observed, but that standard Real Business Cycle (RBC) theory fails to predict this feature of the data. We show that allowing for “anticipation effects” in response to “news shocks” enables standard RBC models to predict both the observed patterns of negative comovement and overall positive correlations. Anticipation also improves magnification of shocks in the model without harming predictions for the other second moments central to RBC studies. Anticipation effects improve on standard RBC frameworks by offering an empirically plausible explanation for the nontrivial fraction of time that aggregate variables are observed to comove negatively.

Fiscal Policy and Interest Rates: The Role of Sovereign Default Risk

Recent events have highlighted the potential importance of nonlinear efiects of flscal variables (notably debt and deflcits) on interest rates: While in times when government solvency is not a concern the standard crowding-out efiects are of moderate magnitude, in times when default risk becomes an issue the interest rate efiects can become very large. This paper provides new evidence on the magnitude of these efiects. For the case when default risk is not a concern, it uses an arbitrage-free term structure model to estimate the dynamic efiects of flscal policy shocks on interest rates along the entire maturity spectrum. For the case when default risk becomes a concern (thereby violating a central assumption of the term structure model), I present evidence based on EMU government bond spread regressions on time-varying efiects of national flscal policies on spreads as well as the time-varying sensitivity of yield spreads to international risk aversion as a function of the state of flscal policy. JEL classiflcation: E6, H6.

The influence of micro-credit on poverty alleviation among rural dwellers: A case study of Akoko North West Local Government Area of Ondo State

The study which was conducted in Akoko North West Area of Ondo State, examined the influence of micro credit on poverty alleviation among rural areas. The study among other things examined the socio-economic characteristics of respondents, activities of the Ondo State micro credit agency (OSMA) and the influence of micro credit on some selected macroeconomic variables of respondents. Data were sourced with the aid of well structured questionnaires from 120 respondents randomly selected from Arigidi and Okeagbe. The data collected were analysed majorly with the aid of descriptive statistics. Findings show that the incidence of poverty was high among the economically active age bracket as the mean age was 33 years. Result also showed that all respondents acquired formal education as 60% had above primary school education. Also, 39.2% of total respondents had no specific occupation before the inception of the scheme. Moreover, the scheme had positive influence on respondents’ major macroeconomic variables namely income, savings, consumption expenditures and asset acquisition. Among other things, the level of poverty was high as reflected in the type of residence, cooking materials, health institutions attended by respondents and educational institutions attended by their children. Generally 20.8, 30.9, 47.5 and 0.8% rated the programme good, poor, fair and excellent respectively. The study recommends a greater coverage of the state by the scheme. Recipients should also be encouraged to reinvest their profits in other productive economic activities. Key words: Micro-credit, poverty, rural areas.

Are the Effects of Fiscal Changes Different in Times of Crisis and Non-Crisis? The French Case

This paper shows that the impact of changes in budgetary variables on major macroeconomic variables varies in sign and magnitude in times of crisis and non-crisis in France. We find that these nonlinearities are both frequent (as they exist on all behaviors analyzed: real GDP, private consumption, business investment and private employment) and significant. For this, we estimate time-varying probability Markov-switching models (TVPMS) in order to take into account two budgetary regimes, on the one side periods of severe recessions or depressions (crises), and, on the other side normal periods (expansions or moderate recessions). These two regimes are identified endogenously, so that we do not need to preliminary separate episodes of huge contractions and expansions of the business cycle. Further, we are able to identify the variables influencing the probability of a switch between regimes. Searching for nonlinear fiscal impacts in the form of regime-switching effects, we assume temporary variations in the budgetary variables, both on the revenue side (taxes on consumption, on firm's profit, lump sum transfers) and on the expenditure side (traditional public boosts of aggregate demand, transfers, and subsidies). Our results show that if one considers the aggregate GDP, public expenditure has a stronger impact during crisis and the expenditure multiplier is greater than the tax multiplier. Also, when households are sensitive to the unemployment situation, tax cuts do not increase consumption spending, while transfers are playing a significant role. On the firms side, our results show that direct taxes changes induce a (stimulus) effect in the investment rate only during non-crisis periods. A rise in subsidies has a negative influence during crises. Finally, the estimates suggest that employment policies should be asymmetric: fiscal measures aiming at reducing unit labor costs could be efficient in good times, while an increase in public employment is preferable during crisis.

Coordination between monetary policy and fiscal policy for an inflation targeting emerging market

Several studies including Blanchard (2004) and Favero and Giavazzi (2004) imply that in emerging market economies, a tight monetary policy within an inflation-targeting framework could actually increase the price level due to the lack of fiscal discipline and the associated high risk premium. We extend their arguments in two ways. First, we introduce a semi structural model with time-varying parameters, where the risk premium is ‘unobserved’ and it is derived within the system. Such an approach fits better with the volatile nature of emerging market economies by allowing us to track down the time-varying effects of macroeconomic dynamics on both the model-consistent risk premium and the other key variables. Second, we obtain impulse response functions and analyze the implications of a tight monetary policy on major macroeconomic variables. Taking the Turkish economy as our reference point, we find that the arguments of Blanchard (2004) and Favero and Giavazzi (2004) seem to be valid.

The effects of oil price shocks on the Iranian economy

The Iranian economy is highly vulnerable to oil price fluctuations. This paper analyzes the dynamic relationship between oil price shocks and major macroeconomic variables in Iran by applying a VAR approach. The study points out the asymmetric effects of oil price shocks; for instance, positive as well as negative oil price shocks significantly increase inflation. We find a strong positive relationship between positive oil price changes and industrial output growth. Unexpectedly, we can only identify a marginal impact of oil price fluctuations on real government expenditures. Furthermore, we observe the ”Dutch Disease” syndrome through significant real effective exchange rate appreciation.

Appropriateness of Inflation Indices for an Open Emerging Economy

Appropriateness of Inflation Indices for an Open Emerging Economy

Identification of Electoral Cycles: A Case for Greece

The purpose of this paper is to identify and examine the existence of electorate business cycles in Greece over the last thirty three years. After a brief literature review of the theoretical framework regarding electorate business cycles we used quarterly data for Greece ranging from 1974Q1-2004Q4. Error correction models for major macroeconomic variables were initially employed, and then through a PROBIT and LOGIT estimation evidence was found in support of an opportunistically manipulative incumbent in the case of Greece.

Data Revisions Are Not Well Behaved

We document the empirical properties of revisions to major macroeconomic variables in the United States. Our findings suggest that they do not satisfy simple desirable statistical properties. In particular, we find that these revisions do not have a zero mean, which indicates that the initial announcements by statistical agencies are biased. We also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement, which means that the initial announcements of statistical agencies are not rational forecasts.

Are some taxes different than others? An empirical investigation of the effects of tax policy in Canada

This paper investigates the response of major macroeconomic variables to four different types of tax policy innovations in Canada within a VAR framework. The positive tax multipliers documented in the previous literature are found only for corporate tax innovations. Our results indicate that different taxes affect output differently, and imply that the composition of total taxes may be a major factor behind cross-country variation in the sign and magnitude of total tax multipliers.

An application of optimal control theory in economics: optimal fiscal and monetary policies in Iran

Abstract In this paper, the stochastic optimal control algorithm (OPTCON) is used to calculate optimal fiscal and monetary policies under fixed, flexible and crawling peg exchange rate regimes for the third five year Iranian development plan (2000–2004). The results of the study show that in the absent of active monetary policy instruments, the government expenditures are greater and the optimal tax revenues are lower than the proposed values in Iran third development plan. However, under a flexible exchange rate regime, the optimal values of government expenditures are lower and the optimal values of tax revenues are greater than that proposed in Iran’s third development plan. The study also shows that using optimal macroeconomic policies lead to lower fluctuations in major macroeconomic variables. The main conclusion seems to be is that only under the flexible exchange rate regime, the macroeconomic goals of the plan can be achieved, the flexible exchange rate regime being recommended as a policy instrument for Iran’s fourth five year development plan.

Data Revisions are not Well-Behaved

We document the empirical properties of revisions to major macroeconomic variables in the United States. Our findings suggest that they do not satisfy simple desirable statistical properties. In particular, we find that these revisions do not have a zero mean, which indicates that the initial announcements by statistical agencies are biased. We also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement, which means that the initial announcements of statistical agencies are not rational forecasts. We also provide evidence that professional forecasters ignore this predictability.

Are Some Taxes Different than Others? An Empirical Investigation of Tax Policy in Canada

This paper investigates the response of major macroeconomic variables to four different types of tax policy innovations in Canada within a VAR framework. The positive tax multipliers documented in the previous literature are found only for corporate tax innovations. Our results imply that different taxes affect the output differently, and the composition of the total tax response may be a major factor behind cross-country variation in the sign and magnitude of total tax multipliers. Keywords: Tax Policy, VAR

Consumer Behavior Under the Influence of Terrorism Within the United States

Many indicators are helpful in improving statistical performance for forecasting and policy analysis. We do believe, however, no single indicator (or type of indicator) can do the necessary work by itself. Any new finding is likely to make a better contribution in combination with others that have been found to be useful. Timeliness, flexibility, and foresight are important properties of indicators, and we are especially interested in information that reflects subjective feelings of participants in the economy. Results of surveys covering consumers, producers or managers are useful in forecasting major macroeconomic variables, like personal consumption expenditures and personal income. Preliminary results indicate that models including survey results perform better than those that do not include survey results. Other surveys would be appropriate for such macroeconomic variables as industrial production, employment, and financial market averages.

Core inflation in the Euro area

Using a common trends model, a forward-looking ‘core’ inflation measure is estimated for the Euro area based on long-run relations among major macroeconomic variables, bearing the interpretation of long-run inflation forecast. The proposed measure may be particularly suitable for the ‘two-pillar’ monetary policy strategy of the ECB which focuses on medium-term inflation prospects.

Inflation Modelling in the Euro Area

The aim of this paper is to provide econometric tools to analyse and forecast inflation dynamics in the Euro area, starting from a small-scale cointegrated VAR system. In order to supply information on the long-run inflation trend, a forward-looking "core" inflation measure is constructed. This measure is based on long-run relations among major macroeconomic variables, bearing the interpretation of a long-run inflation forecast. The proposed measure may be particularly suitable for the "two-pillar" monetary policy strategy of the ECB which focuses on medium-term inflation prospects.

Core Inflation in the Euro Area

Using a common trends model, we estimate a forward-looking core inflation measure for the Euro area based on long-run relations among major macroeconomic variables, bearing the interpretation of long-run inflation forecast. The proposed measure may be particularly suitable for the two-pillar monetary policy strategy of the ECB which focuses on medium-term inflation prospects.