Macroeconomic Policy Objectives Research Articles

The Threshold Effect in the Relationship Between Inflation and Economic Growth in Ghana

Sustainable growth of the economy and ensuring a stable price market are two major macroeconomic policy objectives of Ghana’s economy, although policy makers find it tough in meeting these targets simultaneously. This is because high rate of inflation has adverse effect on economic growth, despite the fact that, a steady fall of the general price level for a continuous time period may be detrimental to the economy. Thus, the study sought to investigate the threshold effects of inflation on economic growth in Ghana. Annual time series data from 1980-2019 was used. The study found 10.70% as the inflation threshold value for Ghana. The results show that, anytime inflation is less than 10.70%, its negative effect on the economy is much less than when it increases beyond the threshold value of 10.70%. At the end, suggestions based on these findings are proffered to the relevant agencies, organizations, institutions, and stakeholders for necessary action.

Macroeconomic Policies for a Sustainable World

ABSTRACT The urgency of the climate crisis is such that it needs to inform most policy-making. It represents a major threat to human development. Yet while the existence of the crisis is generally acknowledged, this has not affected macro-economic policy even though the climate crisis has major effects on the accepted objectives of macro-economic policy, including growth and economic stability. The paper explores changes in macro-economic policy needed for sustainability which should become an intrinsic and overriding objective of policy. Implications of doing so are explored, including replacing the growth objective with green/sustainable growth, altering the measurement of GDP accordingly; greatly increasing the weight given to the well-being of future generations with implications for interest and investment rates; and reforming taxes and expenditures. Ballooning of debt is justified to support a rapid transition to a carbon-free economy. Among high-income countries, the growth objective should be questioned. Low income countries need green growth to attain reasonable living standards. Large-scale resource transfers to low income countries are essential to support green expenditures for mitigation and especially adaptation. High priorities are a change in the approach of the IMF and World Bank, and innovative financial mechanisms to support the required transfers.

Review on: Effect of Inflation on Economic Growth in Ethiopia

One of the main objectives of macroeconomic policy of most developing countries like Ethiopia is to attain sustainable economic growth together with stable price level. Price stability is considered as a proxy for macroeconomic stability, the ongoing high level of inflation is not a good sign. Large fluctuations in inflation for firms, consumers and the public sector reduce the economy in the long run growth potential. The nations of the countries who are highly affected by the problem of inflation are those who have low level of income or fixed income and unemployed portion of the population. Higher average inflation has a negative impact on the steady state growth. This is because of the higher cost of transaction that inflation causes to the money market. It is generally accepted that instability in the general level of prices causes substantial economic distortions, leading to inefficiencies, both in aggregate employment and output. Due to different factors, the effects of inflation have significant effect on economic growth in Ethiopia.

The dynamic interrelationship between interest rate and macroeconomic policy objectives: Case of the United Kingdom

Abstract. The objective of this study is to provide empirical evidence on the short- and long-run relationships between the short-term interest rate, London interbank offered rate (LIBOR) and macroeconomic policy objectives, such as price stability, economic growth, and stability of the exchange rate market. For this purpose, we deploy quarterly frequency data from the United Kingdom between 2000 and 2015 and adopt a multiple regression model. Furthermore, this study uses the Johansen, Stock-Watson cointegration test and the Granger Causality test in order to examine the dynamic short- and long-run relationships among LIBOR, the consumer price index as a proxy of price stability, the real gross domestic product as a proxy of economic growth, and the exchange rate as a proxy of exchange rate market stability. The results showed that all variables have the same order of integration and long-run equilibrium relationships exist between them. The results show evidence of long-run equilibrium relationship between the variables with strong evidence of unidirectional granger causality flow from GDP, CPI and exchange rates to LIBOR. The recommendations proposed in this study have important policy implications for the U.K. government. It is therefore recommended that policy makers and government authorities together with the Bank of England develop and pursue sensible fiscal and monetary policies that would aim at stabilizing both the micro- and macroeconomic indicators such as the inflation rate, interest rate, exchange rate, and money supply, to enhance the growth of the economy, especially for the period after the BREXIT decision. Keywords. Macroeconomics, Interest rate, Monetary policy, London interbank offered rate, United Kingdom. JEL. E43, E51, E58.

Somalia

This Joint Staff Advisory Note on the Poverty Reduction Strategy Paper discusses that Somalia has made noteworthy progress since 2012 to recover from decades of conflict and state fragmentation. The country has succeeded in rebuilding core state capabilities and organized two democratic national elections in 2012 and 2017. Somalia has now reached the stage where it seeks to fully reengage the international community and is requesting debt relief through the heavily indebted poor countries initiative. The authorities developed the Ninth National Development Plan (NPD9) through a highly consultative, participatory process that ensured full country ownership. The macroeconomic policy objectives of NDP9 are to promote economic growth in an environment of low inflation, sustainable fiscal and current account balances, and healthy foreign exchange reserves. The IMF staff recommends updating framework to incorporate greater support for poverty reduction and additional financing from development partners during the interim period. The IMF staff supports the authorities’ commitment to issuing new Somali shilling banknotes, while maintaining de facto dollarization.

Labour market institutions and income inequalities across the European Union

Motivation: Labour market institutions are currently considered as the basic condition for high level of economic development. Decreasing income inequalities on contrary are among the main objectives of macroeconomic policy in the European Union (Europe 2020 Strategy), because unequal distribution may result in lower growth and development rates. The research done in the article is consisted with the institutional theory (D.C. North’s interpretation). Aim: The main aim of the article is to analyse the relations between labour market institutions and income inequalities. There is also an attempt to answer the question if rigid labour market institutions reduce income inequality in European countries. This article provides a taxonomic analysis of labour market institutions in the EU countries. Data from Eurostat, World Bank, Fraser Institute, OECD are used. The article covers selected years: 2010 and 2016. Results: The countries were grouped according to the level of labour market institutions and in regard to income inequalities. The differences between the members of the groups were analysed between 2010 and 2016. Article ends with conclusions connected with rules shaping decisions on the labour market as well as relations between inequalities and institutions.

Uruguay

This Article IV Consultation highlights that Uruguay has preserved macroeconomic stability in the wake of the turbulence in the region due to prudent policies and the accumulation of buffers over the years. With the worsening outlook and less friendly external environment, in the near term, policies should focus on maintaining resilience. In this context, additional efforts are needed to put debt on a firm downward trajectory and reduce inflation to within the target band. The IMF staff assesses that the external position is broadly consistent with fundamentals and desirable policy settings. The authorities and IMF staff have remained in broad agreement on the macroeconomic policy objectives, including maintaining public debt on a sustainable trajectory, keeping inflation low, and allowing exchange rate to adjust in line with fundamentals. Fiscal adjustment, however, has not proceeded as quickly as had been originally expected, and inflation has proven difficult to contain within the authorities’ target range.

Exploring macroeconomic frameworks conducive to structural transformation of sub-Saharan African economies

The conventional macroeconomic policy framework, with its focus on maintaining macro stability is inadequate for the purpose of accelerating the structural transformation of African economies. This ‘policy position’ paper explores an alternative framework, wherein macroeconomic policies are applied coherently to one another and in coordination with other policies, and a resolution of the short-run trade-off between the macroeconomic policy objectives of stabilisation and development is sought in terms of a long-term development approach for enhancing both aggregate demand and supply capacity as an anchor for navigating a path towards structural transformation. After presenting a working definition of structural transformation, the paper presents the core elements of such a framework and discusses the corresponding policy agenda under five headings. Using this agenda as a benchmark, it discusses how to approach the debates on fiscal, monetary and financial policies, avoiding the limitations of standard macroeconomic literature, in order to make those policies conducive to Africa’s structural transformation.

The Unemployment-Stock Market Relationship in South Africa: Evidence from Symmetric and Asymmetric Cointegration Models

In this study, we examine linear and nonlinear cointegration and causal relations between unemployment and stock market returns in South Africa using quarterly data collected between 1994:Q1 and 2016:Q1. Our empirical results reveal significant cointegration effects between the time series in both linear and nonlinear models, even though both frameworks ultimately reject the notion of any causal relations between the variables. Collectively, our study rejects the notion of unemployment being a good predictor for stock market returns and neither do developments in the stock market have any effect on the unemployment rate. Such evidence advocates for weak-form efficiency in the JSE equity prices whereby unemployment data cannot help investors to predict the movement of future share prices and further suggests that policymakers cannot rely on stock market development as an avenue towards lowering the prevailingly high levels of unemployment as set in current macroeconomic policy objectives.

Collective bargaining systems and macroeconomic and microeconomic flexibility: the quest for appropriate institutional forms in advanced economies

Abstract This paper addresses the design of the machinery of collective bargaining from the perspective of microeconomic and macroeconomic flexibility. In the former context, somewhat greater attention is given over to enterprise flexibility than external adjustment. In the latter context, close attention is also paid to changes in collective bargaining along the dimensions of bargaining coverage, structure, and coordination. Support is adduced for the German, contemporary Scandinavian, and British models. The role of trust in securing micro and macro flexibility also receives attention, suggesting that the polder or Dutch model might also be expected to populate the firmament of fit-for-purpose collective bargaining arrangements. JEL Classification: Microeconomics/Institutions (D02), Institutions and the Macroeconomy (E02), Employment/Unemployment/Wages (E24), Income Distribution (E25), Macroeconomic Policy Objectives (E61), Labor Economics Policies (JO8) Trades Unions (J51), Collective Bargaining (J52), Labor-Management Relations (J53), Public Policy (J58), Comparative Analysis of Economic Systems (P51)

The Effects of Higher Oil Prices on the Level of Consumer Prices in Jamaica: An Estimation of the Pass-Through Effect for the Period 2001 to 2016

Oil prices on the world market over the last four decades have been viewed with serious macroeconomic concerns in oil-importing countries. In Jamaica, questions have been raised about the extent to which higher oil prices has pushed up the rate of inflation. Over the review period (January 2001 to April 2016), oil price (Petrojam billing price) to the pumps increased by approximately 325 per cent, while inflation rose by 309 per cent, with multiple peaks and troughs within. These increases, together with a high volatility in oil price, have serious implications for macroeconomic policy objectives given Jamaica’s high oil intensity ratio. This paper seeks to assess the inflationary effect of higher oil prices using the pass-through mechanism for the period 2001 to 2016, using monthly data.Results derived from this study show that a one-time 10 percentage points’ increase in oil price, denominated in the domestic currency, would push inflation up by 0.021, 0.020 and 0.014 percentage points during the first three months, respectively, after the initial change in oil price. Using oil prices to the local gas stations, an increase in the price of unleaded gasoline 87, unleaded gasoline 90 and diesel by 10 percentage points show that inflation increased in the following month by 0.02 percentage points, increases similar to that related to higher world prices.

The Effects of Higher Oil Prices on the Level of Consumer Prices in Jamaica: An Estimation of the Magnitude of the Pass-Through Effect for the Period 2001 to 2010

Higher oil prices on the world market over the last five years have been viewed with serious macroeconomic concerns in oil-importing countries. In Jamaica, questions have been raised about the extent to which higher oil prices has pushed up the recent high rate of inflation. Over the last five years (2006-2010), oil price increased by approximately 23.0 per cent, while inflation rose by 64.8 per cent. These increases, together with a high volatility in oil price, have serious implications for macroeconomic policy objectives given Jamaica’s high oil intensity ratio. This paper seeks to assess the inflationary effect of higher oil prices using the pass-through mechanism for the period 2001 to 2010, using monthly data.Studies have shown a decline in the magnitude of the pass-through effect of oil prices on inflation for developed countries and for a number of developing countries over the last three decades. Results derived from this study show that a one time 10 percentage points increase in oil price would push inflation up by approximately 0.017, 0.012 and 0.024 percentage points during the first three months, respectively, after the initial change in oil price.

Business Cycle in China since the Lehman Crisis: Interaction among Macroeconomic Policy, Economic Growth and Inflation

AbstractThe major objectives of China's macroeconomic policy are to stabilize economic growth and inflation, which, in turn, are important factors determining key prices, such as the policy interest rate, the renminbi exchange rate and stock prices. In a framework that distinguishes different phases of the business cycle based on whether the current period's economic growth rate and inflation rate are above or below their “normal” values, this paper analyzes the interaction among macroeconomic policy, economic growth and inflation in China since the Lehman crisis, and the implications for these key prices. The path of China's economy indicates that stimulus measures taken by the government during the recession phase and tightening measures implemented during the overheating phase have helped minimize the fluctuation over the business cycle. Our analysis shows that Chinese authorities tend to rely more on adjusting the exchange rate than the interest rate to stabilize the economy. Comparing with conditions at the time of the post‐Lehman recession, the current slow pace of economic growth in China may reflect not only weakening demand, but also a lower potential growth rate associated with the arrival of the Lewis turning point.

Empirical Analysis of the Relationship between FDI, Technology Transfer and Economic Growth in Nigeria

Technology transfer (TT) and foreign direct investment (FDI) have been identified as an important conduit in the promotion of economic development. But many developing nations fear the opening up of their markets to competition and foreign investment. This paper empirically studies the relationship between FDI, TT and economic growth in Nigeria. Domestic investment (DI), human capital and the degree of openness are crucial variables used in this study mechanism. The acceptance of the twin concept of FDI and TT as a tool for economic growth and convergence in LDC has been a long item even by policy makers and economists in planning macroeconomic policy objectives and object of desired attainment. It is now a debate if exogenous or endogenous factors drive economic growth. Our objective for this research is to present the trend and ascertain the impact of FDI, technology transfer and openness of the Nigerian economy against domestic investment and the available human capital resource on economic growth. Analytical measure was used to present the trend of the variables and econometric methodology was used to provide empirical evidence on the impact of endogenous and exogenous variable in the Nigeria context. Conclusions from the findings were that domestic and external variables constitute economic growth. Furthermore, human capital was crucial for both domestic and foreign investment to strive. Technology transfer (TT) causes

ANÁLISE SOBRE VARIAÇÃO DA TAXA REFERENCIAL DA ECONOMIA NACIONAL <br><strong>DOI:10.7444/fsrj.v4i1.99</strong>

O propósito central deste estudo é analisar um modelo econométrico para fins preditivos acerca da taxa de juros utilizada como referência na economia brasileira, a qual consiste na taxa Selic-Efetiva, a fim de atestar a viabilidade em efetuar previsões sobre variações desta taxa no curto prazo.
 Desta forma, são detalhadas as principais variáveis macroeconômicas que afetam a taxa Selic-Efetiva, como as variações sobre preços de commodities agrícolas e de energia, nível de produção industrial nacional, taxa de câmbio e dívida líquida do setor público.
 A abordagem macroeconômica moderna descreve a importância do Banco Central na consecução de suas metas para manutenção da estabilidade econômica, dentre estas, convergir a taxa de juros verificada com a meta estabelecida pelo Comitê de Política Monetária (COPOM) para a taxa Selic.
 Ademais, o presente trabalho visa explanar a relevância em se prever, com razoável grau de acuracidade, a taxa de juros referencial da economia brasileira, podendo o modelo proposto ser utilizado no suporte para tomada de decisão para estratégias de investimentos e ferramenta adicional no monitoramento acerca da consecução dos objetivos de políticas macroeconômicas.

ANÁLISE SOBRE VARIAÇÃO DA TAXA REFERENCIAL DA ECONOMIA NACIONAL

This study’s main objective is to analyse an econometric model for forecasting purposes concerning the interest rate which is adopted as standard reference within the Brazilian economy, namely, the Actual-Selic rate, so as to verify the feasibility of performing short term predictions as to its variations. Thus the major variables that impact the Actual-Selic rate, such as price variations of agricultural and power commodities, national industrial production level, exchange rate and public sector net debt, are detailed. The modern macroeconomic approach describes the relevance of the Central Bank upon achievement of its goals so as to maintain the economic stability, amongst which lies the convergence of verified interest rates with the Selic rate target, as set forth by the Monetary Policy Committee (COPOM). Furthermore, this study poses to explain the relevance in forecasting, with a reasonable level of accuracy, the benchmark interest rate of Brazilian economy. The proposed model may be used to support decision making concerning investment strategies and as an additional tool for the monitoring of the achievement of macroeconomic policy objectives.

Inflation accounting and control through monetary policy measures in Nigeria: Multi-regression analysis (1973-2010)

This study was carried out to evaluate Inflation accounting and control through monetary policy measures in Nigeria from 1973 to 2010. Secondary data were used empirically to do the assessment. Aggregate data on independent variables (monetary policy measures) that affect inflation were collected and analyzed using multiple regression model and the ordinary least squares estimation techniques. From the analysis carried out, it was found that some of the variables (money supply, interest rate and exchange rate) were statistically significant, which means that the studied variable could be used to predict inflation. Furthermore, domestic credit was not statistically significant, even though it could be used as a policy variable to account for inflation. Based on these findings, it was recommended that monetary supply, interest rates and exchange rates should be the principal policy variables to be manipulated in controlling inflation in Nigeria. I. Background of the study Inflation is a serious macroeconomic problem and it is an aspect of macroeconomic instability. It can make a comparison of economic conditions at different point in time quite difficult, creates complications for economic measurement, and brings uncertainty when we try to look into the future. Inflation is a substantial and sustained increase in general price level leading to disequilibrium thus undermining the ability of money to serve as a tool for market coordination. In Nigeria, monetary policy measures are used to control inflation and other macro-economic variables in order to ensure economic stability. Monetary policy involves measures designed to regulate and control the volume, cost, availability and direction of money and credit in an economy to achieve some specific macroeconomic policy objectives (Anyanwu, and Oackhenan, 1995).

When is Inflation Harmful? Estimating the Threshold Effect for Ghana

Problem statement: Is inflation harmful? At what level? For all countries, both developed and developing, one of the fundamental objectives of macroeconomic policy is macroeconomic stability. In Ghana monetary and fiscal policies are aimed at sustaining high economic growth rates together with low inflation (price stability). Approach: This study estimated the threshold effect of inflation in Ghana for the period 1960-2008 using threshold regression models designed to estimate the inflation thresholds instead of imposing them. Results: We found evidence of a threshold effect of inflation on economic growth in Ghana. The result indicates inflation threshold level of 11% at which inflation starts to significantly hurt economic growth in Ghana. Below the 11% level, inflation is likely to have a mild effect on economic activities, while above this threshold level, inflation would adversely affect economic growth. Conclusion: The study concluded that the current medium term inflation target of 6-9% annual average set by the Bank of Ghana and the Government respectively is well below the 11% threshold is in the right direction.

Do Capital Inflows Matter to Asset Prices? The Case of Korea*

In the present paper, we investigate whether capital flows induce domestic asset price hikes in the case of Korea. This issue is relevant for crisis‐hit economies trying to prevent a boom–bust cycle as well as in the formulation of macroeconomic policy objectives in emerging market economies. Korea has recently experienced large capital inflows, in particular a surge in portfolio inflows. Furthermore, asset prices, including stock prices, land prices and nominal and real exchange rates, have also appreciated. The empirical results, obtained using a vector autoregression model, suggest that capital inflow shocks have caused stock prices but not land prices to increase. The effects on the nominal and real exchange rates have been limited, which relates to the accumulation of foreign exchange reserves.

Uncovering the Hit List for Small Inflation Targeters: A Bayesian Structural Analysis

We estimate underlying structural macroeconomic policy objectives of three of the earliest explicit inflation targeters within the context of a small open economy dynamic stochastic general equilibrium model. We assume central banks set policy optimally, such that we can reverse engineer policy objectives from observed time series data. Joint tests of the posterior distributions of these policy preference parameters suggest that the central banks are very similar in their overall objective. None of the central banks show a concern for stabilizing the real exchange rate. All three central banks share a concern for minimizing the volatility in the change in the nominal interest rate. We also show that the resulting optimal policy rule responds to exchange rate movements, even in the case where the central banks do not explicitly care about exchange rate stabilization. This result is also corroborated by results from an alternative simple‐rule characterization and estimation of central bank behavior. These last two findings point to the pitfalls of making inferences, from the level of ad hoc simple rules, about what central banks may care about.