Japan's financial crises and lost decades

In this paper, we explore the role of financial intermediation malfunction in macroeconomic fluctuations in Japan. To this end we estimate, using Japanese data, a financial accelerator model in which the balance sheet conditions of entrepreneurs in a goods-producing sector and those of a financial intermediary affect macroeconomic activity. We find that shocks to the balance sheets of the two sectors have been quantitatively playing important role in macroeconomic fluctuations by affecting lending rates and aggregate investments. Their impacts are prominent in particular during financial crises. Shocks to the entrepreneurs’ balance sheets have played a key role in lowering investment in the bubble burst during the early 1990s and in the global financial crisis during the late 2000s. Shocks to the financial intermediaries’ balance sheets have persistently lowered investment throughout the 1990s.     

THE YEN‐DOLLAR EXCHANGE RATE AND MALAYSIAN MACROECONOMIC DYNAMICS

This paper empirically assesses the effect of the yen‐dollar exchange rate on selected macroeconomic variables, namely, real output, price level, and money supply, for Malaysia. The results, which are based on a vector autoregressive framework, suggest that variations in the yen‐dollar rate can have significant influences on Malaysia's macroeconomic variables. More specifically, the yen‐dollar depreciation leads to contraction in real GDP and money supply. These results are fairly robust to alternative model specifications. We believe that, apart from providing important insights into the interactions between the yen‐dollar rate and domestic macroeconomic variables, our results contribute to the debate on choice of exchange rate regimes for Malaysia.     

Macroeconomic Effects of an Ageing Population in Mauritius

The economic literature focuses mostly on faster ageing of population among developed countries; however, many developing countries experience even more dramatic pace of this process. Mauritius, with the median age of population higher than the world average since 1990s, represents a prominent example of such a case. In this paper, we analyse demographic developments in Mauritius and discuss their macroeconomic implications using an open-economy OLG model with demographic shocks. We project that a decline in the Mauritian interest rate and net foreign assets to GDP resulting from ageing will be accompanied by a temporary increase in GDP, consumption and investment.     

Forecasting China's economic growth and inflation

Although macroeconomic forecasting forms an integral part of the policymaking process, there has been a serious lack of rigorous and systematic research in the evaluation of out-of-sample model-based forecasts of China's real GDP growth and CPI inflation. This paper fills this research gap by providing a replicable forecasting model that beats a host of other competing models when measured by root mean square errors, especially over long-run forecast horizons. The model is shown to be capable of predicting turning points and to be usable for policy analysis under different scenarios. We find that M2 supply, rather than interest rates, is a key variable for forecasting macroeconomic variables. Annual GDP growth for the next five years is predicted to be close to the 6.5% official target and a future GDP growth path is predicted to be of L-shape rather than U-shape.     

Determinants of Real Chinese GDP 1978–2014

In 2014, the IMF reported that China became the largest economy in the world according to Purchasing Power Parity rates. This study aims to explain the Chinese economic miracle. It focuses on frequently suggested factors influencing China’s real gross domestic product (GDP), such as export promotion, exchange rate policy, and foreign direct investment (FDI). The paper employs the Bounds test of the autoregressive distributed lag (ARDL) model to test for cointegration. Once cointegration is established, Granger Causality is investigated using the vector autoregressive model and the Toda and Yamamoto (1995) method. Two different combinations of the real macroeconomic variables exports, exchange rate, imports, and FDI were employed to examine Granger causal relationships. All explanatory variables, except for the exchange rate, were found to have plausible relationships with GDP. The exchange rate and GDP relationship was unexpected; a Renminbi appreciation was associated with an increase in GDP. To investigate this paradox, a third ARDL model was estimated with exports as the dependent variable and the exchange rate, world GDP, and FDI as the independent variables. In this model, we found evidence of cointegration and a plausible relationship between real exports and the real exchange rate. Exchange rate devaluation increased exports and thus indirectly increased GDP. Such findings help to resolve the unexpected results. Nonetheless, according to the Granger causality tests the established statistical evidence is rather weak. We found that both the exchange rate and FDI are no longer strong drivers of economic growth in China.     

关键货币境外余额的国际政治经济学——美国的境外美元管理及其对中国的影响

关键货币境外余额是重要的国际经济变量,它不仅会影响关键货币的国际地位和全球金融市场稳定,也关系到境外关键货币持有国的经济稳定和储备资产安全。关键货币国通过经济、外交甚至军事手段对境外货币余额的规模、资产配置、地区分布以及持有者结构实施管理,以便实现对外融资、获取经济安全和榨取财富等多重目标。在金融危机背景下,基于经济安全、国际博弈和对外融资的目的,美国大致会阶段性地吸引美元回流并调控其在国外的分布,但美元霸权地位和美国国内的两党政治体制将使其境外美元余额的规模在长期内进一步扩张,因此人民币近期仍面临升值压力,欧洲和新兴市场国家金融动荡将会持续甚至加剧。随着中国国内资产价格的下跌,美元的升值和回流在中期时段内可能会冲击中国宏观经济稳定;如果美国不能控制其财政赤字,中国将长期面临美债和美元违约的巨大风险。中国需要降低宏观脆弱性,加速调整经济发展模式,从根本上摆脱美元陷阱。     

Foreign and Domestic Shocks: Macroeconomic Responses of ASEAN-3 Countries

Abstract

The study provides new empirical evidence on the relative importance of foreign and domestic shocks on selected ASEAN-3 (Malaysia, Indonesia, and Thailand) macroeconomic variables. Three structural vector auto regression models are estimated for each country. The focal point is given on the formulation of the sources of foreign factors. The first model uses trade-weighted foreign variables of both US and Japan to represent the foreign factors. The other two models use US and Japan by themselves, respectively, to represent the foreign factors. Two important results are emerged. First, foreign sectors play an important role in influencing macroeconomic variables of each of the ASEAN-3 country, especially in the medium and the long-run horizon. Second, most of the time, the Japanese factors are more dominant than the US factors in influencing domestic output and inflation for each of the ASEAN-3 countries.     

Are Real GDP Levels Nonstationary? Evidence from Panel Data Tests

Ever since the seminal paper of Nelson and Plosser (1982), researchers have focused on the potential nonstationarity of important macroeconomic variables, and unit root tests are now a standard procedure in empirical analyses. While there are many findings of unit roots in macroeconomic variables using the popular augmented Dickey and Fuller (1979) test, this test has low power against near-unit-root alternatives. Recently, panel data procedures have been proposed as an avenue to increased power. This paper applies panel unit root tests to international real GDP and real GDP per capita data. The results overwhelmingly indicate that international real GDP and real GDP per capita levels are nonstationary.     

Bayesian Vector Autoregression Forecasts of Chinese Steel Consumption

China consumed 116 million tonnes of steel in 2000, making it the largest consumer of steel in the world. China differs fundamentally from other countries at similar levels of economic development in that the secondary sector, the traditional consumer of steel products, already accounts for a significant proportion of domestic production. This suggests that little of any future growth in China's steel consumption will result from further rises in the ‘steel intensity’ of domestic production. Rather, growth in GDP will be the driving force behind future growth in steel consumption. This paper uses a macroeconomic Bayesian vector autoregression model to forecast steel consumption in China to 2010. This technique uses historical correlations among the variables in a system of equations and Bayesian priors on the estimated parameters, to introduce more flexibility into the forecasting process and align the models closer in nature to structural commodity market models. The forecasts suggest that steel consumption in China will rise from 116 million tonnes in 2000 to around 182 million tonnes in 2010.     

A numerical evaluation of the sustainable size of the primary deficit in Japan

We investigate how large a primary deficit-to-GDP ratio Japan’s government can sustain. For this investigation, we construct an overlapping generations model in which multi-generational households live and the government maintains a constant ratio of the primary deficit to GDP. We numerically show that the primary deficit cannot be sustained unless the rate of economic growth is unrealistically high, which is more than five percent according to our settings. Our result implies that Japan’s government needs to achieve a positive primary balance in the long run in order to avoid the divergence of the public debt-to-GDP ratio.     

The external and domestic side of macroeconomic adjustment in China

This paper sheds new light on the external and domestic dimension of China’s exchange rate policy. It presents an open-economy model to analyse the macroeconomic adjustment process in China under both flexible and fixed exchange rate regimes. The model-based results indicate that persistent current account surpluses in China cannot be rationalized, under general circumstances, by the occurrence of permanent technology or labour supply shocks. As a result, to understand the macroeconomic adjustment process in China it is necessary to mimic the effects of potential inefficiencies, which induce the subdued response of domestic absorption to permanent income shocks, thereby causing the observed positive unconditional correlation of the trade balance and output. The paper argues that these inefficiencies can be potentially seen as a by-product of the fixed exchange rate regime, and can be approximated by a stochastic tax on domestic consumption or a time-varying transaction cost technology related to money holdings. Our results indicate that a fixed exchange rate regime with financial market distortions, as defined above, might induce negative effects on GDP growth in the medium term compared with a more flexible exchange rate regime.     

碳税经济效应:一个文献综述

碳税的开征在短期内会阻碍相关宏观经济指标的增长,但长期内会对经济有助推作用,有利于经济的健康发展。论文主要梳理和综述了国内外学者对碳税经济效应的研究,集中表现在GDP、产业结构、区域经济三个方面的影响。最后论文还探讨了后续研究的方向,对于进一步深化我国碳税的理论研究和制度建设有重要的意义。     

Strategies for fiscal consolidation in Japan

Japan's key fiscal challenge is to put public finances on a more sustainable footing. This paper investigates the macroeconomic implications of alternative fiscal strategies for Japan using the IMF's Global Fiscal Model. The results suggest that (i) an adjustment package that achieves primary balance through lower social transfers and government spending and a higher VAT is the most viable option and has a smaller negative impact on growth than other fiscal measures; (ii) achieving primary balance is not sufficient to stabilize the net debt ratio; (iii) prefunding future aging costs provides greater long-term benefits compared with less front-loaded strategies; (iv) tax reform involving shifting from corporate taxation to consumption taxation could mitigate the short-term output losses associated with fiscal consolidation; (v) the spillovers to the rest of the world from consolidation in Japan are positive in the medium term, but modest.     

产业空洞化:野田政权面对的经济困局

"3·11"大地震之后,日本国内经济产业环境发生了重大变化:巨大震灾不仅使日本经济遭受重创,而且,还带来了供应链断裂、福岛核危机以及因核电停运而导致的电力紧张。这些新的问题又与内需不足、财政失衡、增长低迷等日本经济长期未能解决的"沉疴"交织在一起,导致日本国内经济产业环境急剧恶化。此外,严峻的全球经济形势更让日本经济雪上加霜:欧债危机、美国经济复苏乏力、新兴经济体增长减速,危机四伏的全球经济环境导致日元不断升值。在上述三重压力的打击之下,是否"离开日本",已经成为日本企业战略重构的关键,所以,日本政府正在面临史无前例的产业空洞化困局。     

Demographic Effects on Personal Saving in the Future

After briefly examining the various proposed causes for the decline in the U.S. personal saving rate in the past decade, this essay then argues that a shift in the demographic composition of the population will be a much more important cause for a decline in personal saving in the future. A change in the balance between those in the labor force who are saving and retirees who are dissaving will result in a considerable fall in the aggregate saving rate under most assumptions. The simulation model used to examine this phenomenon takes into account the interest rate, the growth rate of the economy, the retirement age. the growth of population, and the life expectancy. Attention is also given to certain consequences of the fall in the saving rate, such as changes in the interest rate, changes in asset prices, and a decline in the GDP growth rate.     

Factors affecting the external debt-servicing capacity of African nations: An empirical investigation

While there have been a vast number of studies and international discussions on developing nations’ debt servicing capacity, not much attention has been focused on the African dimension. This article examines the determinants of debt reschedulings for forty-five African nations over the twelve-year period 1976 to 1987. A logit model of the macroeconomic variables affecting the probability of rescheduling is developed. The findings indicate that debt-service ratio, reserves to imports ratio, debt-service payments to capital inflow ratio, GDP growth rate, rate of domestic inflation, and net government deficit to GDP ratio are important indicators of debt servicing capacity. The overall results, while providing strong support for some of the often-mentioned causes of the African debt crisis, are seen to hold useful possibilities for both the debtor countries and international creditors.     

Exports and Economic Growth: Cointegration and Causality Evidence for Côte d’Ivoire

This paper examines the short‐ and long‐run relationship between economic growth, exports, real investments and labour force for Cô d’Ivoire for the period 1961–97, using cointegration and error correction techniques. The results indicate that there is one long‐run equilibrium relationship among the four variables, and the causal relationship flows from the growth in exports to the growth in GDP both in the short and long run, providing support for the export‐led growth hypothesis. This finding suggests that the recent trade reforms aimed at promoting domestic investment and restoring international competitiveness to expand and diversify exports have the potential of increasing economic growth in the future. L’article examine la relation à court et à long terme entre croissance économique, exportations, investissements réels et population active en Cô d’Ivoire pour la période 1961–97, au moyen de la technique de co‐intégration et de correction des erreurs. L’article conclut qu’il existe une relation déquilibre à long terme entre les quatre variables et que la relation de causalité lie la croissance des exportations à la croissance du PIB tant à court qu’à long terme, ce qui étaye l’hypothèse d’une croissance soutenue par les exportations. Ces conclusions laissent penser que les réformes commerciales récemment introduites pour promouvoir les investissements intérieurs et restaurer la compétitivité internationale, afin d’étendre et de diversifier les exportations, ont le potentiel de renforcer la croissance économique dans l’avenir.     

The impact of compensation and productivity on the final consumption of households and GDP growth rates in the long term

A single-commodity model reflecting the material aspect of GDP reproduction, the balance between revenue and expenditure flows in key economic sectors, and labor dynamics is considered in terms of simulation models to analyze Russia’s long-term economic development options. Different levels of compensation and productivity were assumed as the model’s basic data in the scenario, and the growth rates of the GDP and the final consumption of households were examined on a 15-year horizon (2006 to 2020). The results show that under regulated inflation processes, compensation growth stimulates households’ final consumption with no increase in productivity because of the inflow of foreign labor resources. Growth is observed not only in imports but also in domestic production. The problem is to determine the boundaries of possible growth in labor migration and to find ways of restricting it by improving labor productivity.     

What causes changes in the effects of fiscal policy? A case study of Japan

In the past two decades, the Japanese government has spent a considerable amount of money to counteract the severe recessions that have recurred since the early 1990s. Numerous studies have pointed out that the effects of these expenditures have diminished since around the 1990s. However, none of these studies has statistically explored the reasons for this diminution, which they implicitly or explicitly mention. The purpose of this study is to statistically investigate these reasons, using a threshold vector autoregression (VAR) in which the causes pointed out in the literature are adopted as the threshold. If the null hypothesis that the estimated parameters are equal under each regime is rejected, we can conclude that a given cause does affect the macroeconomic structure and, in turn, the fiscal policy effects. We then estimate the impulse response functions in both sample periods, as constructed on the basis of threshold estimates, and compare the effects of fiscal policy in each period.The following are the main results of the study. First, we found that the diffusion index of the attitudes of financial institutions toward lending and the yearly change in the annual average of the quarterly ratios of the structural primary budget balance to potential GDP significantly reject the null hypothesis; therefore, we concluded that these variables have a definite impact on fiscal expansion effects. Second, the resulting impulse response functions show that the effects are traditional, although there are some notable differences. In particular, when banks’ attitude toward lending is tight and the financial condition of the government is bad, the demand-enhancing effects of government expenditure should be considered weak. In this regard, the traditional accelerator effects of private investment, the existence of liquidity-constrained households, and non-Keynesian effects are key operative concepts.     

FOREIGN DIRECT INVESTMENT IN ZIMBABWE: THE ROLE OF INSTITUTIONAL AND MACROECONOMIC FACTORS

The purpose of our research is to examine the impact of property rights on foreign direct investment (FDI) in Zimbabwe for the period 1964‐2005. While the macroeconomic determinants of FDI have been analysed to a considerable extent in past empirical work, the role of institutional factors such as the protection of property rights and the efficiency of the legal system has been underexplored. Using a multivariate cointegration framework, we use a newly constructed de jure property rights index for Zimbabwe to determine the impact of property rights on FDI. The empirical evidence shows that property rights are consistently an important explanatory variable of FDI in Zimbabwe, even after controlling for periods when there are no significant new foreign capital inflows. Other significant explanatory variables of FDI in Zimbabwe are the real gross domestic product (GDP), capital intensity, the external debt to GDP ratio, political instability as well as the educational levels.