Nominal GDP 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.

Indian Economy from a Global Perspective

India, the world’s fifth-largest economy by nominal GDP, plays an increasingly important role in the global economic landscape. As one of the fastest-growing economies, India's contributions extend across industries such as information technology, pharmaceuticals, manufacturing, and services. This paper explores the Indian economy from a global perspective, examining its strengths, challenges, and the critical reforms needed to sustain growth. It delves into India’s trade relations, foreign direct investment (FDI), and the impact of global events on its economy, while also reflecting on how India contributes to the global economy in areas such as technology, innovation, and workforce participation

Constructing Divisia Monetary Aggregates for the Asian Tigers

This study constructs Divisia monetary aggregates for the “Asian Tigers”—Hong Kong (1999–2024), South Korea (2009–2024), Singapore (1991–2021), and Taiwan (2005–2024)—and assesses whether Divisia monetary aggregates explain nominal GDP better than simple-sum money. Our findings demonstrate that Divisia indices respond more sensitively to economic shocks. For Hong Kong and Taiwan, narrow Divisia money provides the best explanations for fluctuations in nominal GDP. Our results suggest that Divisia monetary aggregates can be beneficial for monetary policy analysis in these countries and underscore the importance of further research into the empirical performance of Divisia monetary aggregates in macroeconomic prediction.

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.

The case for nominal GDP level targeting

AbstractIn this paper, I make the case for a nominal GDP level target in the United States. I begin by arguing that the Federal Reserve's current flexible average inflation targeting regime is deficient. I then argue that since a competitive monetary equilibrium is optimal, monetary policy should seek to replicate the competitive monetary model. Doing so resembles nominal GDP targeting. I also offer the following practical reasons why policymakers might prefer a nominal GDP target. Nominal GDP targeting (a) does not require policymakers to determine whether current economic fluctuations are demand‐driven or supply‐driven nor does it require real‐time estimates of the output gap, (b) automatically prevents the central bank from exacerbating supply shocks, and (c) leads to greater financial stability. Finally, I make the case for targeting the level, rather than the growth rate, of nominal GDP. Doing so prevents the path of nominal GDP from deviating arbitrarily far from its intended growth path, which anchors expectations and aids in long‐run economic decision‐making.

Financial Risk Identification and Control in the Openness Context: A System Dynamics Approach to Renminbi Internationalization

In an attempt to control a series of domestic and foreign financial risks amid the internationalization of Renminbi (RMB), China’s currency, this article categorizes these risks into five types: excessive volatility risk of exchange rate, balance of payments risks, policy risks, crisis contagion risks, and excessive volatility risk of financial asset prices. By employing system dynamics simulation models and sensitivity analysis, this paper examines strategies for financial risk control. Results indicate that the impacts of crisis contagion risk and balance of payments risk are the most significant, and that financial risks are extremely sensitive in such aspects as the degree of capital openness, exchange rate volatility, and foreign trade dependency. The paper suggests adopting strategies like gradually opening China’s capital accounts, maintaining its exchange rate fluctuations within a reasonable range, stabilizing its dependency on foreign trade, and ensuring that its growth rate of M2 matches that of the nominal GDP – a combined effort to control the complicated financial risks arising from various sources.

A two-for-one deal: Targeting nominal GDP to create a supply-shock robust inflation target

A key tenet of modern central banking says that if inflation expectations are anchored then monetary policy should “look through” the inflationary effects of supply shocks that do not permanently affect potential output. However, the inflation surge of 2021–2022 vividly demonstrated that this standard monetary policy prescription is difficult to implement in practice since it requires a real-time knowledge of what shocks are driving changes in inflation while requiring a credible nominal anchor. This paper argues that a workaround solution to these problems is for central banks to stabilize the growth path of nominal GDP. Doing so allows central banks to look through short-term inflation movements caused by temporary supply shocks while still anchoring medium-run inflation. Therefore, central banks that target nominal GDP also are effectively targeting medium-run inflation. This two-for-one targeting deal not only solves the knowledge problem while keeping inflation anchored but can be implemented via standard Taylor-like rules. This paper shows how to operationalize such a framework for the case of the United States.

Long-run perspectives on [formula omitted] in OECD countries: An empirical analysis

The difference between the implicit nominal interest rate and the growth rate of nominal GDP is a key determinant of the dynamics and the sustainability of public debt. This paper studies the determinants of r-g in a panel of 17 OECD countries since the early 1980s. Whereas the focus of existing empirical studies is mainly on fiscal, monetary and financial factors behind the interest–growth difference, our approach and contribution are to highlight in particular the role of real long-run determinants, such as technical progress, employment growth, demographic change, and income inequality. This allows us to derive empirically based projections for r-g beyond the next five or ten years. Our baseline expectation is that r-g will stay below zero for the next two decades in most European countries that we study. An important policy implication is that the debt-carrying capacity of governments is substantially higher now than in the 1980s or 1990s. For the United States, however, our baseline projection of r-g is positive.

On the Moldovan Economy’s Potential Output and Output Gap: Evidence from the Hodrick-Prescott Filter

This paper introduces the notion of an economy’s potential output, its output gap and its output gap rate, analyses the properties of the Hodrick-Prescott filter drawing from the studies in the literature, and proceeds to estimate and discuss Moldova’s potential output, its output gap and its output gap rate utilising a methodology which can be used in other economies. The data for our empirical work comprise annual data on: 1. Moldova’s nominal GDP and the annual rate of growth or real GDP over the period 2010-2022; and 2. The latest forecasts of these indicators for the period 2023-2026. Data earlier than 2010 are not comparable as they were compiled under a different methodology. We use this data set to generate a time series of the evolution of Moldova’s real GDP in average prices of 2010 over the period 2010-2026. We apply the Hodrick-Prescott filter with the two different values of the filter’s smoothing parameter suggested by the studies in the literature for the decomposition of annual data. As it is well-known that the estimates of the filter are sensitive to the value of the smoothing parameter, we use the average of the two estimates in order to calculate the Moldovan economy’s potential output, output gap and output gap rate through time. Our calculations suggest that, over the period analysed, Moldova’s potential output has grown at a modest rate which is not sufficient for the country to converge to the EU average and attain its EU aspirations. The paper concludes by discussing a number of recent economic developments in Moldova, the required policy response to attain Moldova’s EU aspirations and areas for further work.

CGE Analysis of the Impact of the 2024 Minimum Wage Increase on the National Economy in Indonesia

One of the minimum wage problems is caused by workers/laborers' needing to agree with the wage increase set. The minimum wage increase is still minimal compared to the high worker need. The Labor Organization president called the government to raise the provincial minimum wage (UMP) and district/city minimum wage (UMK) 2024 by 15%. This figure is obtained from the Decent Living Needs (KHL) survey results and other indicators such as inflation and economic growth. On the other hand, the minimum wage increase of 15% is considered by employers to be unrealistic, considering the condition of the national economy is hit by uncertainty. The government said that determining the minimum wage based on PP 36/2021 and considering the welfare of workers/laborers’ also looks at the Company's capabilities. This paper aims to see new macroeconomic and welfare conditions due to the increase in the minimum wage by 15%. Using the general equilibrium model of static computing (CGE), the analysis results show that an increase in the minimum wage leads to a decrease in demand for labor, especially in labor-intensive sectors. The increase in wages impacts increasing household income, thus indicating an increase in household welfare. However, inflationary pressures brought about by the minimum wage increase mask the increase in revenue, resulting in a decrease in household consumption budgets. This translates into a loss of net well-being, with a more significant impact on urban households than rural households. The output of most sectors, especially labor-intensive sectors, declined, but nominal GDP increased. The increase in nominal GDP is due to rising prices, not actual economic output.

Remittance and Macroeconomic Performance in Top Migrating Countries

Globalization opens up economies and encourages the free movement of persons and factors of production. Diaspora investors and workers earn income in the process and make remittances to the migrating countries. We examine the impact of the remittance inflow on the macroeconomic performance of top emigrating countries, which comprise nine emerging and two advanced economies. We conduct group and individual country analyses with distinct econometric models (Feasible Quasi Generalized Least Squares and Dynamic Common Correlated Effects) using data between 1987 and 2021. The results reveal positive impact of remittance inflows on nominal GDP and nominal GDP per capita and on real GDP and real GDP per capita, although evidence on the latter is weaker. In all, the emigrating countries can benefit from diaspora remittance in terms of improved productivity and macroeconomic performance. We therefore recommend better systems to facilitate remittance receipt and policies to channel such flows more into investment activities.

Infrastructure Sector as An Inducement Determinant Propelling The Incredible Economic Growth Story Of Bharat

‘India will be world’s third largest economy in four years’ forecasted by IMF chief economist Ms Gita Gopinath and mentioned in her interview to India Today. India’s economy is among the fastest growing in the world. With a $3.7 trillion GDP, India’s economy is currently ranked as the fifth largest. India’s GDP is predicted to surpass that of Germany and Japan by 2030, according to a number of estimations. According to S&P, a rating organisation, India’s nominal GDP is expected to increase from $3.4 trillion in 2022 to $7.3 trillion by 2030.

Determinacy and E‐Stability with Interest Rate Rules at the Zero Lower Bound

AbstractWe evaluate and compare alternative interest rate rules, namely, average inflation targeting (AIT), price‐level targeting (PLT), and traditional inflation targeting rules, in a standard New Keynesian model that features recurring, transient zero lower bound regimes. We use determinacy and expectational stability (E‐stability) of equilibrium as the criteria for stabilization policy. We find that PLT policy, including nominal GDP targeting as a special case, most effectively promotes determinacy and E‐stability among the policy frameworks, whereas standard inflation targeting rules are prone to indeterminacy. AIT can induce determinacy and E‐stability effectively, provided the averaging window is sufficiently long.

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.

Commodity price shocks and monetary policies in commodity exporting African countries - A DSGE analysis

The study investigates alternative monetary policy rules in commodity-exporting African countries, by formulating, estimating and simulating a DSGE model for 5 African countries. We apply the Bayesian technique for our estimation and utilize impulse response functions to evaluate alternative monetary policy rules to commodity price shocks. Our results show that commodity price shocks influence business cycle fluctuations in African countries, whereas the results from alternative monetary policy rules are mixed. The findings show that nominal GDP targeting (NGDPT) is the best policy rule to minimize output volatility and price variations against positive commodity price shocks. However, if the objective is to minimize the effects of positive commodity price shocks on the exchange rate, the inflation targeting (IT) is the best policy rule. Further, the findings shows that IT and NGDPT are the best policy rules to stabilize output and prices against negative commodity price shocks while exchange rate targeting (ERT) is the best policy rule to stabilize exchange rate against negative commodity price shocks.

The role of Islamic banking financial intermediation on Indonesia’s economic growth

This study attempts to examine the relationship between deposits, disbursed financing, the number of bank offices, and economic growth before and during the COVID-19 crisis. The time series data of Indonesian Islamic banking for the period from 2009 to 2022, has been utilized in this study, estimated using Auto Regressive Distributed Lag (ARDL). Deposits and disbursed financing respectively are the ratio of total deposits and total disbursed financing to nominal GDP. Economic growth is measured using Indonesia’s real GDP growth based on 2010 constant prices. The results show that in the long run, deposits have a very significant positive effect on economic growth. Meanwhile, financing and the number of bank offices do not affect economic growth. In the short term, except for the number of bank offices, real GDP, deposits, and financing contribute to the adjustment of changes in real GDP towards long-term balance, which takes approximately seven quarters. This study fills a gap in the literature on the role of Islamic banking on economic growth. This study also adds a new view of the role of Islamic banking in economic growth during the COVID-19 crisis. This study provides an important contribution to policymakers and other stakeholders.

РЕГУЛЮВАННЯ ЕКОНОМІКИ КРЕДИТНИМ МУЛЬТИПЛІКАТОРОМ

The author asserts that the credit multiplier of the country’s banking system regulates the growth of the economy and characterizes the level of its development and prove that the limiter and indicator of economic development is the share of value added by production in the aggregate product, which determines the existing technological mode. It is proved that the ratio of nominal GDP to the monetary base of the Central Bank is identical to the product of the credit multiplier and the speed of money circulation that is constant for each technological mode. We consider the industrialized economies, developed economies, and highly developed economies. The marginal zero inflation multiplier is determined, at which real GDP growth stops and a transition to a deflationary crisis occurs. It is established that the Central Bank’s increase in the interest rate to reduce inflation leads to a sharp decrease in the multiplier and lending to production, while credit regulation allows us to reduce inflation by targeting, without changing the interest rate and without reducing lending. A model for regulating the economy with a credit multiplier has been developed using an engineering calculator and Ukraine’s economic recovery in 2024–2025 has been simulated. Keywords: economy, credit regulation, market, balance, labor, capital, money, credit multiplier, interest rate, currency, financial papers, crisis, inflation.

Relationship between Capital and Recurrent Expenditure with GDP Growth in Nepal: An Autoregressive Distributed Lag (ARDL) Approach

This study examines the relationship between Capital and Recurrent Expenditure with GDP Growth in Nepal. Employing a multivariate autoregressive distributed lag (ARDL) approach to the data from 1974 to 2020, the empirical findings reveal a strong long-run relationship between recurrent and capital expenditure with the nominal GDP. Interestingly, the impact of recurrent expenditure is higher than that of capital expenditure on GDP in the long run. However, the analysis highlights no clear short-run relationship. The weak short-term relationship observed may be due to the leakage of multipliers and the concentration of a major portion of expenses towards the end of the year. Consequently, the study calls for reforms in the implementation of the government budget, ensuring the even distribution of expenses throughout the fiscal year. Also, the government can increase the efficacy of its spending in the short run by pursuing policies that plug in the leakages of the spending multiplier. The outcomes of this research contribute to the broader discourse on the optimal allocation and implementation process of government resources and provide valuable insights for policymakers in Nepal seeking to bolster economic growth and development.

Exploring the Drivers of Government Expenditure Patterns in Pakistan

The study investigating the factors influencing government spending in Pakistan utilizes time-series data spanning from 1980 to 2019. The analysis modifies Wagner's law by incorporating political instability alongside variables such as GDP, debt, inflation, population, trade openness, oil price, and tax revenue. The long-term findings validate Wagner's law in both models, while the short-term results deviate from Wagner's law in Pakistan. This deviation suggests that industrialization progress has enabled the government to improve public expenditure by providing essential facilities. Additionally, the study reveals that the government's active role in national activities leads to an increase in its size. Inflation, population, oil price, real GDP, and political instability exhibit positive and significant connections with government expenditure in the long run for both models. Conversely, debt, nominal GDP, political instability, trade openness, and tax revenue demonstrate negative and significant connections with government expenditure in the long run for both models. However, the short-term results vary between the two models.

Exports of Mangoes from Pakistan: Determinants and Competitiveness

Pakistan, with limited export commodities and markets, grapples with a persistent trade deficit, making its agricultural sector pivotal to the economy. This study delves into the contemporary economic concept of competitiveness, aiming to evaluate and identify determinants influencing the export of mangoes—a significant contributor to the agricultural GDP at 2.48%. Comparative advantage, rather than competitive profit, serves as a more apt term in the realm of trade theory. In this research both time series and panel data was used. The data was collected from secondary sources from multiple sites and main among these were UN-FAO, AMIS, WDI and WITS. Gravity model were used to find the determinants that provided estimation of exports between the Pakistan and other countries. The variables studied in this research were export quantity, export value and export price between Pakistan and its major exporters. Collected data was analyzed through appropriate statistical technique using RCA indices and their extensions. Findings of the study were expected to be helpful in developing some strategies to increase exports of mango from Pakistan. The determinants nominal GDP’s for both Pakistan and importing countries, exchange rate and mango area evaluated for mango were significant. This research results showed that Pakistan is quite stable in mango production and much more efforts are needed to ensure and maximize improvements in export of varieties of mango production.