The Macroeconomic Outlook

A slow recovery, commencing in the December quarter of 1997, is expected from the current recession. Overall, gross domestic product (GDP) may increase by 2.8 per cent in the year to the June quarter of 1992, and continue to increase at a similar rate thereafter.
This subdued recovery is likely to see the unemployment rate at over 70 per cent to the end of 1992, before moving down slowly to around 8.5 per cent by the mid-1990s.
Consumer price index (CPI) inflation may fall sharply from a peak of 8.0 per cent in 1989-90 to a trough of under 3 per cent in 1997-92, due to the recession and movements in oil prices. With a slow recovery, inflation may then increase to 5 per cent per annum in the medium term.
The current account deficit has fallen from 6.0 per cent of GDP in 1989-90 to 4.7 per cent in 1990-91, despite a fall in the terms of trade of 5 per cent. However, this has been due to the cyclical downturn. With a slow recovery in demand, and rising real labour costs hampering expansion in export and import-competing industries, the current account deficit may once again reach 6 per cent of GDP by the mid-1990s, implying steady increases in the foreign debt-to-GDP ratio.
This forecast assumes monetary policy targets an inflation rate of 5 per cent per annum. Any further easings in monetary policy may undermine the credibility of the inflation objective with the result that the trade weighted index (TWI) exchange rate may drop sharply from 59.     

The Macroeconomic Outlook

A slow recovery is expected from the current recession. Since reaching a trough in the September quarter of 1990, real gross domestic product (GDP) has followed a flat path which is likely to continue through to the September quarter of 1991. A slow recovery may then commence in the December quarter of 1991. This is consistent with real GDP growth of -0.9 per cent in 1990-91 followed by 2.4 per cent in 1991-92 and around 3 per cent per annum to the mid- 1990s compared with 'normal' growth of 2.5 per cent per annum.
This recovery is likely to see the unemployment rate at over 10 per cent for most of 1991-92, before moving to around 8 per cent by the mid-1990s.
Inflation may fall sharply from a peak of 8.0 per cent in 1989-90 to a trough of 3 to 4 per cent in 199 1–92, due to the recession and movements in oil prices. With a slow recovery, inflation may increase to 4 to 5 per cent per annum in the medium term.
The current account deficit has fallen from 5.9 per cent of GDP in 1989-90 to a likely level of 4.1 per cent in 1990-91, but part of this gain is cyclical rather than structural. Thus the deficit is expected to increase to around 5 per cent during recovery and remain flat to the mid- 1990s, implying steady increases in the ratio of foreign debt to GDP.
Looser monetary policy would erode part of the forecast sustained reduction in inflation. Looser fiscal policy would lead to a higher current account deficit.     

The Economic Situation

Throughout the first nine months of 1976 the Australian economy has remained virtually stagnant, with output and employment increasing only marginally and unemployment rising also. With the government following a severely contractionary policy in an attempt to break inflation the economy seems poised for a further modest downturn in the next nine months so that a self-sustaining recovery from the current recession does not seem to be in prospect before the second half of 1977. On the basis of existing policies our forecasts indicate a rate of growth of real GDP of only about 1.0 per cent in 1976–77, implying a further significant rise in unemployment during the financial year. There have been some hopeful signs in recent months of a reduction in inflation — the consumer price index increases in the first three quarters of 1976 were modest and wage rate increases remain closely in line with the wage indexation guidelines — but three factors have emerged to cast doubt on whether this improving trend will continue. The first is the effect of the recent drought on prices of foodstuffs, particularly meat, and the second is the expected 1.5 to 2.0 per cent increase in the consumer price index as a result of the changes in the method of financing hospital and medical services. These two factors mean that the December quarter increase in the consumer price index may be more than 5 per cent, threatening a further stimulus to inflation in 1977. Thirdly, present government policies could easily lead to a breakdown of the wage indexation system and a return to some form of collective bargaining over wage rates. Assuming nevertheless, a de facto continuation of partial indexation in 1977, we expect increases in male award wages and male average earnings of about 13 per cent during 1977, these increases being similar to those during 1975 and 1976 but much below the increases of 36 per cent and 28 per cent respectively recorded during 1974. Our forecasts also indicate increases in the consumer price index of 14 per cent during 1976 and 11 per cent during 1977, following increases of 16.3 per cent and 14.0 per cent during 1974 and 1975 respectively. These forecasts indicate that the government's fiscal, monetary, exchange rate and wage policies are likely to come under heavy challenge early in 1977, and decisions taken at that time are likely to be major determinants of economic developments in Australia in the next few years. The Institute would again urge a shift to a co-operative package including full wage indexation, with cuts in indirect taxes and public sector charges to wind down inflation and expand the economy. On current indications, labour productivity will be no higher in 1976–77 than in 1973–74, because of the weakness of total output, so that the whole burden of wage increases in that three year period has fallen on unit costs of production. It is our belief that the twin problems of inflation and unemployment will only be defeated in Australia when both cuts in indirect or direct taxes and increases in productivity are applied to reducing inflation in the context of an orderly system of wage and price determination.     

Foreign investments in real estate,economic growth and property prices: evidence from OECD countries

The last two decades have witnessed a growth in foreign direct investments (FDI) in the real estate sector in most of the Organization for Economic Co-Operation and Development (OECD) countries. It is argued that FDI in the real estate sector may improve economic growth in recipient economies. On the other hand, property prices have increased considerably in OECD countries in recent years and some argue that FDI in real estate is one of the driving forces of high property prices in these countries. The purpose of this study is to analyze the interrelationship between FDI in the real estate sector, economic growth, and property prices while controlling for interest rate and inflation. We use observations from a set of OECD countries for the period between 1995 and 2008. The dynamic interrelationship is analyzed by applying a panel cointegration technique. Our empirical results show that FDI in real estate do not cause property price appreciations and also do not contribute to economic growth in OECD countries in the short run and the long run.     

The Australian Economy after Devaluation

Before taking account of the measures announced by the government on and after 28 November 1976, the latest statistical information suggests that the economy was broadly on the course outlined in detail in Review 3'76. Both business investment and consumer demand appear to have fallen in real terms, seasonally adjusted, in the last few months. With public sector demand also weak the economy was moving Into a new period of modest decline in overall activity, so that real non-farm GDP was expected to grow by 1 to 2 per cent in 1976–77 and by only 1 per cent in calendar 1977. The rate of inflation has moderated in the first three quarters of 1976 and, in spite of the large increase in the consumer price index expected in the December quarter and the granting of full percentage wage indexation for the September quarter, the rate of inflation seemed likely to be lower in 1977 than in 1976.     

The Macroeconomic Outlook

This quarterly two-year forecast from the Access Economics Murphy (AEM) model updates that presented in the corresponding article in the 4th quarter 1991 issue of the Australian Economic Review.
As predicted in the previous forecast, the economy entered a slow recovery in the December quarter of 1991. Steady growth averaging close to 1 per cent per quarter is likely during 1992–93 and 1993–94.
Unemployment may peak at around 10 3/4 per cent in mid-1992, before slowly falling to a year-average level of around 9 per cent in 1993–94.
Under the influence of the recent recession, CPI inflation is likely to be around 2 per cent per annum on a year-on-year basis for both 1991–92 and 1992–93. With economic recovery, it is forecast to rise to 4.5 per cent per annum in 1993–94.
While the recession has helped bring the current account deficit down from near 6 per cent of GDP in 1989–90 to around 3 per cent for 1991–92, it will rise with economic recovery, and is forecast to exceed 5 per cent of GDP by 1993–94, compared with a sustainable level of 3 to 3 1/2 per cent.
The economic recovery is not proving to be as strong as forecast in One Nation.
However, there is a recovery clearly underway, and any further easing of monetary and fiscal policy risks prejudicing a substantial part of the recent impressive gains on inflation and creates a major medium-term problem for public finances.     

Evidence on inflation–output trade-off in developing and industrial countries

This paper subjects Lucas's output–inflation trade-off study to further empirical investigation. The cross-country study divides the 111 countries covered into 90 developing countries and 21 advanced countries. Lucas's proposition is that volatility of aggregate demand growth should reduce the impact of aggregate demand growth on the cyclical output and the implication of this is that there is no output–inflation trade-off in line with the natural rate theory. We employ annual data over periods that fall between 1958 and 1985 in order to conduct the test. Our findings suggest that Lucas's proposition is valid for developed economies but not for developing economies.     

浅论中国经济发展的周期性及投资策略

中国经济发展具有周期性。在一个完整的经济周期中,不光有通货膨胀和通货紧缩,还存在着经济的四季：复苏、繁荣、衰退和萧条。根据经济周期进行投资,周期性就可能实现财富的阶梯式增长。     

The Steady Inflation Rate of Economic Growth

This paper considers the existence of a path of GDP corresponding to steady inflation in the prices of domestic goods. We estimate the steady inflation rate of growth, denoted the SIRG, at a little over 4 per cent p.a. in the post-float period in Australia. Changes in inflation are modelled as a nonlinear combination of growth and changes, in import price inflation. Because import price inflation is more volatile than overall inflation, policy that targets overall inflation may require growth to fluctuate considerably, whereas growth can be steady if the target is steady inflation of domestic goods' prices.     

Corporate debt and output pricing in developing countries: Industry-level evidence from Turkey

The present study is an application of capital structure theory to developing economies where markets are commonly imperfect. The industry-level data of Turkey is used as a benchmark case to investigate the effects of corporate debt on output pricing, which in return, might have critical implications for stabilization theory. The panel estimations on the major two-digit industries reveal two basic findings. First, short-term debt leads to an increase in output prices while long-term debt has the opposite effect, and short-term but not long-term debt has a cyclical influence on prices. Second, the inflationary effect short-term debt implies a lower capital gain and induces higher prices, while the effect long-term debt implies a higher capital gain and induces lower prices. Given the predominant share of short-term debt in most developing countries, these findings suggest an explanation for inflation inertia on the side of corporate sector.     

The impact of monetary policy on financial markets in small open economies: More or less effective during the global financial crisis?

This paper estimates the impact of monetary policy on exchange rates and stock prices of eight small open economies: Australia, Canada, the Republic of Korea, New Zealand, the United Kingdom, Indonesia, Malaysia, and Thailand. On average across these countries in the full sample, a one percentage point surprise rise in official interest rates leads to a 1% appreciation of the exchange rate and a 0.5–1% fall in stock prices, with somewhat stronger effects in OECD countries than non-OECD countries (though differences are sometimes not significant). We find little robust evidence of a change in the effect of monetary policy surprises during the recent financial crisis.     

Economic fluctuations in Central and Eastern Europe: the facts

This article provides a detailed empirical analysis of quarterly frequency dynamics in macroeconomic aggregates in 12 countries of Central and Eastern Europe (CEE). It shows that business fluctuations in CEE countries are, in general, more pronounced than in developed ones, and are of similar size as in other emerging market economies. Private consumption is particularly volatile. Relative to major developed economies government spending is dominantly procyclical, and net exports are strongly countercyclical. The most frequent country outliers are the high inflation countries of Bulgaria, Romania and Russia, especially in labour market, price and exchange rate variables. Excluding these countries from the sample makes many of the observed patterns in cyclical dynamics more homogenous, and broadly similar to ones established in developed economies.     

Identifying fiscal policy (in)effectiveness from the differential counter‐cyclicality of government spending in the interwar period

Differences across decades in the counter‐cyclical stance of fiscal policy can identify whether the growth in government spending affects output growth and so speeds recovery from a recession. We study government‐spending reaction functions from the 1920s and 1930s for twenty countries. There are two main findings. First, surprisingly, government spending was less counter‐cyclical in the 1930s than in the 1920s. Second, the growth of government spending did not have a significant effect on output growth, so that there is little evidence that this feature of fiscal policy played a stabilizing role in the interwar period.     

Business cycle,interest rate and money in the euro area: A common factor model

In this paper we model and analyze the contemporaneous correlation between interest rate, monetary aggregates, production and prices (of consumer goods, financial assets and real estate) of the euro area. To do this, firstly we estimate a common cyclical factor by means of an unobserved component model with the common factor located in variations in the underlying growth rates, that is, accelerations and decelerations of the variables. The variables mentioned share a significant cyclical factor being all procyclical except for narrow money. Finally we offer an explanation of this empirical finding based on the monetary policy strategy of interest rate pegging followed by the European Central Bank. In this regard, the shared cyclical information suggests (a) that inflation should be considered as a phenomenon that affects the whole economy, and therefore all prices, and (b) that monetary indicators such as monetary aggregates may contribute to the assessment of inflationary risks throughout the cycle.     

Inflation and the Dispersion of Relative Prices: A Case for 4 % Solution

Unlike earlier literature that documented positive association between inflation and the dispersion of relative prices over time, the empirical evidence from this study suggests that the relative price dispersion increases in response to the deviation of inflation from certain threshold/target level in either direction rather than inflation per se. The striking feature of the empirical evidence from United States and Japan is that the inflation rate at which the dispersion of relative prices is minimised turn out to be 4%; hence, supporting the proposal of 4% inflation target for both the countries.     

Pre-recession wage inflation and the strength of the subsequent recovery

This study shows that the rate of wage inflation in the year before a recession is positively related to the rate of employment growth in the subsequent recovery. A possible explanation for this relationship is downward nominal wage rigidity. It is also found that the prior rate of wage inflation is not significantly related to the employment decline during the ensuing recession, suggesting that prior wage inflation has a greater impact on the strength of the recovery from a recession than on the severity of the recession.     

Are Tariffs Inflationary?

Economists universally regard tariffs to be inflationary and free trade to be deflationary, a view that this paper challenges. It is argued that while rotectionism has generally created inflation in developing economies, the experience of the United States was totally different. Tariffs in the US were never associated with rising prices, and trade liberalization with declining prices. High tariffs were always followed by sharp drops in the cost of living. A theoretical model is developed to explain the deflationary effects of tariffs in the United States. Thus tariffs produce inflation only in nonmarket or ualistic developing economies, but not in advanced economies.     

A model of inflation and expectations in Latin America

This paper attempts to overcome certain shortcomings in the existing tests of various theories of inflation and cyclical income growth. It does so by appending a simple model of expectations formation to a simple macroeconomic simultaneous equation model of aggregate supply and demand. Some of the theoretical building blocs are reformulated so as to be more realistic for developing countries. Simultaneous equation estimation techniques are applied to a pooled sample of time series data for 16 Latin American countries. The authors provide empirical evidence supporting the revised hypotheses and offering new insights into the relationships among the actual and expected rates of inflation, the rate of income growth, and the growth rate of the money supply.     

Fiscal multipliers in Japan

In this paper, we estimate government purchase multipliers for Japan, following the approach used previously for a panel of OECD countries (Auerbach and Gorodnichenko, 2013). This approach allows multipliers to vary smoothly according to the state of the economy and uses real-time forecast data to purge policy innovations of their predictable components. For a sample period extending from 1960 to 2012, estimates for Japan are quite consistent with those previously estimated for the OECD as well as those estimated using a slightly different methodology for the United States (Auerbach and Gorodnichenko, 2012). However, estimates based only on more recent observations are less stable and provide weaker support for the effectiveness of government purchases at stimulating economic activity, particularly in recession, although cyclical patterns in Japan make the dating of recessions a challenge.     

When does inflation hurt economic growth? Different nonlinearities for different economies

The effects of inflation on growth are shown to change substantially as the inflation rate rises. Moreover, the nonlinearities are quite different for industrial economies than for developing countries. Whereas it is often assumed that inflation does not significantly hurt growth in developing countries until the 20–40% range, we find that the threshold falls within single digits. Marginal growth costs for developing countries then decline significantly above 50% inflation. Failure to account for nonlinearity biases downward the estimated effects of inflation on growth. Mixing industrial and developing economies together also produces unreliable results.