Nominal GDP Growth Research Articles

Sidestepping the Sovereign Debt Trap? The Case of Poland

ABSTRACT We show that a sovereign debt trap can be sustained – even long term – provided economic growth that would be, if there was no sovereign debt, sufficiently high both in absolute terms and relative to fiscal deficit. While sustainable, the trap may still be as costly (or even more) as fiscal crises, as suggested by the case of Italy and Japan. We also show, based on data for Poland, how easy it is to fall into the trap. In particular, even a transitory slowdown may permanently raise the debt-to-GDP ratio. This might be the case even for government bond yields permanently lower than nominal GDP growth and forgoing some primary spending. The risk that Poland will fall into the trap is compounded by a projected permanent slowdown, circumvention of fiscal rules (if continued), and small corporate and financial sectors limiting the government’s ability to increase taxes without further dampening economic growth. As measures to cut that risk, we argue for growth enhancing reforms and strengthening fiscal rules. The latter would counteract the “war of attrition” and resolve the time inconsistency of a balanced budget policy, which we analyze by modifying the Barro–Gordon model.

Nominal GDP growth targeting vs. Taylor rules in a model with financial frictions

Nominal GDP growth targeting has gained favor over the last few decades in monetary policy literature (e.g., Ireland 2020; Garín et al. 2016; Beckworth and Hendrickson 2020). Calibrated, small-scale New Keynesian DSGE models have supported the proposition that nominal GDP growth (NGDP growth) rate targeting will improve welfare as compared with alternative strategies such as inflation targeting and Taylor rules with standard parameter settings. This paper examines that proposition in the context of a medium-scale New Keynesian model having a financial sector with frictions. In that model, NGDP growth rate targeting does poorly as compared with the Optimal Taylor rule and a wide range of Taylor rule settings leading up to the Optimal (representative agent utility maximizing) Taylor rule. The presence of the financial sector reveals that not only is NGDP growth rate targeting the least successful among the alternative targets and rules in creating welfare in this model; NGDP growth rate targeting also creates dramatically higher volatility of the policy rate and most financial variables.

ASSESSMENT OF THE IMPACT OF ECONOMIC RELATIONS IN FOREIGN TRADE WITH MAIN PARTNER COUNTRIES ON ARMENIA'S GDP

The paper analyzed the foreign trade and economic relations of RA with 13 main partner countries. In the post-Soviet period, these ties developed with Belarus, Georgia, the Russian Federation, Iran and Kazakhstan, and the development of ties with other countries showed different trends. In order to assess the impact of the trade relations of the main partner countries on the GDP of Armenia, a panel data model was built based on the annual data of 1995-2022. The following hypotheses were proposed and verified: “Increasing trade volume with key partner countries contributes to the growth of Armenia's GDP” and “GDP growth of key partner countries contributes to the growth of Armenia's GDP”. Using the Hausman test, the Random Effect model was selected from the Fixed Effect model and Random Effect model alternatives. According to the results of the model, a one percent increase in the growth rate of exports contributes to an increase in the growth rate of the nominal GDP of RA by 0.02 percent, and a 1 percent increase in the growth rate of imports contributes to an increase in the growth rate of the RA GDP by 0.07 percent. An increase in per capita gross domestic product of foreign countries contributes to the growth of Armenia's nominal GDP. A prediction was made based on the model.

Nowcasting National GDP Growth Using Small Business Sales Growth

AbstractThis study shows that the Xero Small Business Index (XSBI) sales growth data can be used to predict the same period's national nominal GDP growth, with high accuracy, in the United Kingdom, Australia and New Zealand. Findings show that XSBI sales growth can predict the same month's GDP growth around two weeks earlier than the official release in the United Kingdom. On the other hand, the three‐month average of the XSBI sales growth can predict the same quarter's GDP growth, six weeks earlier than the official release in New Zealand and five weeks earlier than the official release in Australia.

PFRS 16 Compliance

IFRS 16 addresses the criticisms against IAS 17 that allowed lessees not to recognize assets and liabilities related to operating leases. This study analyzed the impact of operating lease capitalization on 38 selected Philippine-listed companies' key financial ratios from the service sector from 2016 - 2021 under PFRS 16. Key financial ratios were calculated and compared to the changes that happened due to the adoption of PFRS 16 – Leases with firm size, firm age, inflation rate, nominal GDP growth rate and the unemployment rate as moderating variables. Mann-Whitney U Test was employed to analyze the impact of pre-and post-PFRS implementation on financial ratios. The impact of predictor variables on PFRS 16 and key financial ratios were examined using Ordinary Least Squares (OLS) regression analysis. The study result revealed a significant negative influence of PFRS 16 implementation on return on equity, price-earnings ratio, and price-to-book ratio; and a significant positive influence on the debt-equity ratio, and earnings per share. Firm age positively moderates the return on equity and PFRS 16 adoption (p = 0.032). Only the nominal GDP growth rate moderates the key financial ratio and PFRS 16 in terms of the price-earnings ratio (p = 0.019). This implies that PFRS 16 adoption significantly influences some key financial ratios. Management should reconsider their business model, especially on lease transactions, as it will impact their financial reporting. The new accounting standards must be well communicated to stakeholders considering the firm-level and macroeconomic indices for better decision making.

Research on the Influence of Shadow Banking Development on the Scale of Social Financing in China

Background: With the continuous improvement and innovation of China’s market-oriented economy, some traditional financial institutions have released new financial products through financial innovation, and the transaction leverage level of most financial institutions and some non-financial institutions is also rising year by year. The latest Quarterly Monitoring Report of China’s Shadow Banks issued by Moody’s, an international rating agency, shows that the assets of China’s broad shadow banks in the first quarter decreased by about 540 billion yuan to 58.7 trillion yuan, continuing the downward trend in recent years. At the same time, China’s economy rebounded rapidly, and the proportion of shadow bank assets in nominal GDP fell to 55.4% from 58.3% at the end of 2020, the lowest level in eight years. The report shows that in the first quarter of 2021, the overall economic leverage ratio measured by the proportion of the adjusted total social financing to the nominal GDP has declined, because the nominal GDP growth in the quarter was 21.2%, far exceeding the growth of 10.1% of the total social financing. Even so, China’s shadow banks are still huge. Also, some non-financial enterprises began to operate shadow banking business, the number of shadow banking enterprises coming into the financial market is growing fast, which is the background and environment of the emergence and development of enterprise shadow banking studied in this paper. In 2020, due to the impact of the epidemic, the Chinese government will actively adjust its macro policies and release liquidity, which will further drive the development of shadow credit business. In the first quarter of 2020, the overall shadow bank assets increased by 100 billion yuan, rebounding compared with 2019. Among them, financial products and asset management products accounted for the main part, with a total increase of 350 billion yuan. Objective: This paper focuses on using different kinds of products operated by shadow banking enterprises to represent the shadow banking scale of enterprises, and explores its impact on the total amount of social financing, based on which a series of policy recommendations are given. Methods: Collect the operation data of shadow banking enterprises in the ten years from 2010 to 2019, use ols regression analysis and intermediary effect test to analyze the development of enterprises’ shadow banking scale and China’s social financing scale. Results: The development of shadow banking will affect the total scale of social financing. There is a non-linear correlation between the development of shadow banking and the total scale of social financing. Conclusion: The improvement of enterprises’ shadow banking scale will promote the expansion of social financing scale as a whole, and will have a negative effect on the productive investment of various enterprises themselves.

Public Health Development and Economic Growth: Evidence From Chinese Cities

High-quality construction of public health system is the key to maintain social economic activities be ordered and stable. The aim of this study is to understand whether public health development can promote economic growth and how. We construct a public health development index combining the variables of local pollution control and health care by EVM method. Based on the panel data of Chinese 283 cities from 2004 to 2017, fixed effect model and two-stage least squares model are used to test the impact of public health development on economic growth. Then, we discuss the heterogeneous impact of public health development on economic growth though the threshold regression model, under different government intervention, employment population scale and urbanization ratio. What’s more, we discuss the possible transmission effect of three human capital mechanisms, namely mortality, consumption rate and employment population size between public health development and economic growth. The conclusions are: (1) For every 0.1 unit increase in public health development, the growth rate of real GDP can be increased by 5 percentage points, which can drive the nominal GDP growth by about 0.17 percentage points. (2) Public health development can promote economic growth regardless of the scale of urban employment population. Only when the urbanization ratio exceeds 70.87 and the government intervention level is lower than 0.058, the development of public health is conducive to the improvement of urban economic development. (3) Public health development helps to promote economic growth, mainly through two paths, reducing mortality and increasing human capital accumulation. And, reducing mortality is more conducive to urban economic growth than increasing human capital accumulation.

Health, Health-System and Economic Development: A South Asian Perspective

This study investigates the linkages between health and economic development focusing the seven South Asian(SA) countries for the period of 2000-15. Firstly, a situation analysis of major health indicators indicates that SAcountries are advancing well in life expectancy, mortality and fertility rate while the burden of diseases is shiftingfrom infectious diseases to noncommunicable diseases. The study finds that private sources mainly out of pockethealth expenditure dominates the total spending on health care. Using the linear regression method, the researchalso finds that health expenditure growth is positively correlated with Nominal GDP growth in this region. Thisstudy also discusses the health facility situations and finds that health workforce deficiency challenge is criticalin SA countries. This research also recommends that closing gaps in primary care, strengthening accessibility ofhealth care and making progress in health determinants are necessary to expand Universal Health Coverage (UHC)in the SA region. Finally, the study has listed the major policy interventions in the SA countries and highlighted acouple of areas to be addressed for health sector advancement.

Analysis of the impact of macroeconomic factors on real estate prices in Bosnia And Herzegovina

Abstract Economic theory and practice are not acquainted with any unique set of macroeconomic factors that affect real estate prices. The very complexity of this phenomenon relativizes any attempt to establish an unchanged list of macroeconomic factors in BiH. The aim of the research in this paper is to analyze the impact of selected macroeconomic indicators on real estate prices in BiH, in the period from 2007 to 2019. Out of numerous macroeconomic factors that affect real estate prices (real estate prices are viewed as: the value of construction works done and as the value of new dwellings - new construction), 12 macroeconomic factors were singled out: nominal gross domestic product, real GDP growth rate, industrial production growth rate, GDP per capita, average net wages, imports and exports, household deposits in commercial banks, interest rate (housing loans, annual, %), loans to households, household final consumption expenditure, gross fixed capital formation and government final consumption expenditure. Starting from the hypothesis that macroeconomic factors affect real estate prices, it has been concluded that the selected factors significantly determine real estate prices and that most of the predictor variables defined in the model are significant, in terms of impact on the movement of GDP and real estate prices in Bosnia and Herzegovina in the period analyzed. The greatest impact on real estate prices is by household final consumption expenditure, GDP per capita, nominal GDP, interest rate, household deposits and real GDP growth rate. The research used factor analysis (reduction of macroeconomic factors to the optimal number of factors that explain the analyzed phenomenon and its impact on real estate prices) and an extended multiple linear regression model with a statistical software program SPSS, version 21. Modeling the impact of macroeconomic factors on real estate prices has macroeconomic effects and benefits for the country and contributes to the growth and well-being of operators in the real estate market.

The Bet of HK Currency Board System: Peg to US Dollar Gives Way to Peg to RMB

Given that the exchange rate of Hong Kong Dollar (HK Dollar) has repeatedly touched the exchange guarantee of the weak and the strong side during recent years beginning from 2008, some scholars began to hold suspicion to its stability. After studying the economic fundamentals, among them the nominal GDP growth rates and inflation rates, the author found that there are endogenous contradictions in economic basis between Hong Kong (HK) and the United States (US), making the linked exchange rate system expose its underbelly. This paper aims to explore the possibility that HK Dollar turns to peg to renminbi (RMB) by studying economic interactions between mainland China and Hong Kong. With the purpose of providing a clear vision in studying how the economic interactions have impacts on their capital flux, and how the mass of capital floods therefore affects the possibility of the peg of the two currencies, this study attempts to divide economic exchanges into direct and indirect factors, the former including goods trade, tourism services and direct investment and the latter mainly including entrepot trade. Based on the detailed data analysis, this research arrives at the conclusion that HK Dollar should peg to RMB also by conceiving the internationalism of RMB as the booster.

The Italian nominal interest rate conundrum: A problem of growth or public finance?

The economic literature presents a large heterogeneity of results concerning the impact of fiscal variables on interest rates. Focusing on the Italian economy and considering the nature of our interest rate determinants (public finance variables and nominal GDP growth), we decided to undertake a cointegration analysis relying on the Autoregressive Distributed Lag (ARDL) bound test approach, a particularly suitable procedure within this framework that is able to disentangle short-run and long-run dynamics. Our results are quite controversial, shedding new light on the role of gross debt and primary balance as a share of GDP in relation to the long-term Italian nominal interest rate. In this context, the ECB has probably played a crucial role, especially in the most severe phases of the Sovereign debt crisis. The European fiscal framework then shows further critical issues in relation to the new role that fiscal variables play in our econometric analysis.

Macroeconomic Policy Formulation: The Driver of Economic Welfare in Ghana

Dialogue on the effects of macroeconomic policies relative to the welfare of citizens has remained virtually unchanged since time immemorial. These economic policy discussions have had different dimensions, from subjective to objective welfare. As a contribution to literature, this paper thoughtfully wades into this discourse with a specific reference to national policies on nominal GDP growth rate, inflation, and unemployment and how they interact to impact the welfare of citizens. It is common knowledge that macroeconomic policy decisions affect the very survival of citizens; however, it is unclear how policymakers communicate the long-term impact of these blueprints on the livelihoods of citizens to the implementing authorities. What is in the public domain are seminal reports on nominal annual rates of these macroeconomic variables, which are thought to either imply an improvement or a deterioration in the well-being of citizens. Indeed, not every gain in nominal rates, particularly GDP, can be construed as an improvement in the economic well-being of citizens. This study questions whether different approaches to designing and implementing macroeconomic policies are the reasons for the mismatch in the living standards of people around the world, or whether the free market economy, which is deficient in developing people's capabilities, is rather dictating the well-being of citizens. The vector error correction model (VECM) results indicate that economic growth (using GDP as a proxy) has a negative effect on welfare in the long run. As such, we believe that national governments should establish and implement comprehensive and long-term macroeconomic policies capable of boosting the welfare of citizens through creating jobs of all varieties, because mere annual gains in macroeconomic indicators do not realistically reflect the economic welfare of the citizenry.

The Interplay between Digitalization, Education and Financial Development: A European Case Study

The paper explores the relationship between education, digitalization, and financial development between 1996 and 2019 with the aim of showcasing the differences between developed and emerging economies in Europe. We use a Bayesian VAR framework that includes variables related to education, digitalization, and financial development, as well as several endogenous variables to control for differences between countries in terms of nominal GDP growth, unemployment rate, and trade openness. Our findings clearly demonstrate the dynamic interdependence between financial development—including its two main components, financial institutions, and financial markets, digitalization, and education. Furthermore, we find that education is a leading variable in the financial development–education–digitalization nexus, whereas financial development and digitalization are laggard variables. These findings open possibilities for influencing joint policies on digitalization, education, and financial development, particularly in emerging European countries.

The relationship between economic growth, unemployment and poverty

The independent variable in this paper will be nominal GDP in the context of economic growth, while the dependent variables in this study and analysis are unemployment and poverty. The paper provides secondary data from 2004–2019. Based on the results of Chuttoo (2020), the economic growth of 4% has an unemployment rate of 1%. Empirical findings of the study by Shah, Shabbir, and Parveen (2022) show that economic growth has led to the reduction of unemployment. The methodology of the work will take care of two econometric models: in Model 1 the economic growth within the GDP will be analyzed in relation to unemployment, and in Model 2 the nominal GDP growth in relation to poverty will be analyzed. In the paper, we will have graph analysis, descriptive statistics, correlations, as well as linear regressions. The empirical findings of the study have shown that the economic growth within the nominal GDP has a negative relationship to unemployment and poverty in Kosovo, but the effect of this growth has not affected the reduction of the rate of unemployment and poverty in Kosovo

Interaction of monetary and fiscal policy from a historical perspective: Precious metals and Venetian government debt

Was monetary policy crucial for early sovereign debt sustainability? This paper analyses whether the availability of gold and silver drove Venetian government debt servicing costs in the late medieval period. We use an error correction model to describe changes in yields on perpetual bonds issued by the Venetian state. We document that the ability of the Venetian Republic to service its sovereign borrowing can be partially attributed to the supply of precious metals. We show that the substantial increase in debt servicing costs during the 15th century can be associated with an abrupt halt in the supply of gold and silver from mines in Serbia and Bosnia - primarily a consequence of the Ottoman expansion to the west. We control for other explanatory factors, such as mean reversion of nominal yield, real GDP growth and military conflicts.

Demand Deficiency and Inflation in the G7 Countries

In this paper, we analyze the relationship between nominal and real GDP growth for G7 countries for the period 1971 – 2018. A visual inspection of the data indicates the presence of a threshold, above which the structure of the relationship between nominal and real GDP growth rates changes from a positive one to a flat one. Moreover, the volatility of real growth is observed to be higher at high rates of nominal GDP growth. We first test for the presence of a two regime non-linearity by using the Sup F test of Andrews (1993). Due to the presence of heteroskedasticity we also apply the Sup MZ test of Ahmed et al. (2017). Both tests operate under an unknown change point and the latter also allows for
 heteroskedasticity. The results of the tests point to the presence of a ‘demand deficiency ’regime for low nominal demand growth rates and to a ‘harmful inflation ’regime for higher nominal GDP growth rates, these results have strong implications for guiding recent policy discussions on nominal GDP targeting.

СТРУКТУРНО-ДИНАМІЧНИЙ АНАЛІЗ ВНУТРІШНЬОГО СПОЖИВЧОГО РИНКУ У КОНТЕКСТІ МАКРОЕКОНОМІЧНОГО РОЗВИТКУ УКРАЇНИ

The article is devoted to the multifactor structural-dynamic analysis of the development of the consumer market of Ukraine as a system segmented into the markets of food and non-food goods and consumer services, and to determine the factor impact of its segments on macroeconomic dynamics. The stable growth of the analyzed segments was revealed, despite a slight decrease in the volume of sales of services in 2020 due to the quarantine restrictions imposed by the Government for certain types of economic activity. Changes in the commodity structure of the consumer market are analyzed. The average growth rate of food sales was 113.5%, non-food – 111.2%, services – 102.5%, which is fully correlated with the average growth of nominal GDP by 118.1%. It was found that the largest share of household expenditures was concentrated in the food market, where there was a faster growth in consumer prices compared to effective demand. It was found that the average monthly total expenditures of households in the consumer market decreased, primarily on non-food goods and services. In the domestic market of consumer services, there was a tendency to widen the gap between market supply and effective demand and redistribute the structure of consumer demand. To obtain an objective description of the impact of the domestic consumer market on the general parameters of the economic system of Ukraine, the factor influence of sales in consumer markets of food and non-food goods and services on GDP dynamics is analyzed. The significance of the parameters of the regression equation was checked by Fisher’s F-test. It was found that despite the significant aggregate influence of external factors, the obtained regression equation with a high degree of reliability indicates that the state of the consumer market of food products has little effect on nominal GDP, while the growth of non-food and services markets is guaranteed to increase GDP. This allows us to rethink the role of the domestic consumer market as a concept of a holistic system of socio-economic relations, which complements the established location of the interaction of producers and consumers with the institutional component. Further research is recommended to be directed in the direction of an extremely important aspect of goal-setting of institutional regulation of domestic consumer market development, namely meeting the needs of consumers, who are the final link in market relations.

On the welfare implications of nominal GDP targeting

This paper examines the welfare implications of a nominal GDP growth targeting rule, a nominal GDP level targeting rule, and inflation targeting regime in a New Keynesian model featuring positive trend inflation, two measures of welfare, and both high and low growth environments. The paper finds that (i) in general, nominal GDP growth targeting dominates other rules with changes in all dimensions; (ii) nominal GDP growth targeting framework is superior to the level targeting regime for most scenarios; (iii) inflation targeting is preferred to nominal GDP level targeting regime, but to minimize short-run fluctuations, the latter is advantageous; (iv) nominal GDP level targeting may be desirable only in a low growth environment with both low inflation indexation and consumption equivalence criteria. The simulation results provide solid evidence to policy makers on the desirability of nominal GDP growth targeting.

Examining Sustainability of Government Debt in India: Post COVID Prospects

In this paper, we examine the determination of the sustainable level of debt-GDP ratio for the combined debt of central and state governments relative to GDP using (a) an analytical approach which was followed by the Twelfth Finance Commission (FC 12) and (b) an econometric model using threshold estimation. These methods provide results which are quite close to the target debt-GDP ratio of 60% determined by the Fiscal Responsibility and Budget Management (FRBM) review committee of 2018. In order to understand the evolution of government debt in India, we have divided the period from 1991-92 to 2018-19 into two sub-groups (A) consisting of years where a primary deficit was incurred; and (B) years where a primary surplus was shown. In the case of India, all years are characterized by primary deficit. These years are further divided into three sub-categories based on the contribution to the debt-GDP ratio made by (i) primary balance and (ii) excess of nominal growth rate over interest rate. The approach used here provides a modified view of the dynamics of debt as explained by the contribution of cumulated primary deficit and that of the excess of nominal growth over interest rate which was used in Rangarajan and Srivastava (2004). We have shown that this dynamics is well captured by an ARDL estimation which estimates the individual contribution of each of the contributing factor to debt accumulation namely primary deficit to GDP ratio, lagged debt-GDP ratio, nominal GDP growth rate and interest rate. We find that government debt in India is likely to exceed the sustainable debt-GDP threshold by a large margin in the post Covid years and even after normalcy is restored, it would take a long period for sustainability to be restored. It would also require that adequate policy measures are taken to ensure that growth rate exceeds the interest rate over long contiguous periods.

Rethinking Macro Measurement

Economists have long recognized that widely reported and followed economic indicators such as GDP, productivity, and real wage growth often fail to do a good job of capturing the concepts they purport to measure. And as the chief economist of Credit Suisse begins by noting in this article, this mismeasurement problem has been viewed as significant in the cases of inflation and inflation‐adjusted (or real) measures, and even more troubling in the case of productivity.Even before the onset of the COVID‐19 pandemic, the U.S. economy, as viewed through the lens of conventional macro statistics, was almost universally agreed to be struggling with pronounced demographic and productivity slowdowns. But if the slowdowns in nominal GDP and wage growth are indisputable, the author suggests that systematic overstatement of U.S. inflation may well have not only exaggerated the extent of such slowdowns, but obscured the possibility of actual increases in productivity and real wages during the past three or four decades.Along with the possible mismeasurement of some macroeconomic data, the author also discusses the ways in which macro measures tend to be misused. Though the limitations of macro data have long been understood by experts, the widespread use and uncritical acceptance of such numbers as representing concepts such as living standards, the cost of living, worker efficiency, technology growth, and welfare have very significant implications for today's policy debates and public assessment of the health of the economy. After discussing some of these measurement challenges and calling for greater acknowledgment of the limitations of conventional macro statistics by economists when citing them, the author suggests that “the prestige of national accounts data has likely peaked,” and better approaches appear to be emerging. Notable among such approaches are alternative measures, some spawned by the pandemic, that are improving how economists track the economy in real time and, in so doing, making possible “a deeper, more accurate, and more realistic view of economic activity.”