Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries

This paper measures sacrifice ratios for all countries in the world over an approximately forty year time period, in addition to exploring the determinants of worldwide sacrifice ratios. We test the most commonly-cited determinants: the speed of disinflation, openness, inflation targeting, central bank independence, and political factors for both OECD and non-OECD countries. We find that the speed of disinflation is the most important determinant of OECD sacrifice ratios, but puzzlingly has no effect on non-OECD nations' disinflation costs. Instead we find evidence that greater central bank independence and more openness are associated with lower non-OECD sacrifice ratios. We also find that the ratio of government debt to GDP – a variable that is not important when it comes to OECD countries – is highly significant for non-OECD economies. Specifically, we find that higher indebtedness is associated with lower sacrifice ratios in non-OECD nations, suggesting that greater levels of debt do not lead to higher expectations of inflation. Furthermore we find evidence that the negative impact of debt on non-OECD sacrifice ratios is being driven by middle income economies.     

Government size,government debt and globalization

This article empirically investigates the effect of globalization on government size and debt. Using panel heterogeneous cointegration techniques to a panel of developing and developed countries, it finds that globalization reduces government size and debt. In terms of components of globalization, government size is found to increase with trade openness but decreases with financial, social and political globalization. On the other hand, government debt increases with financial and trade openness but decreases with social and political globalization. The evidence is robust to different estimation methods and different samples. Our data also indicate unidirectional causality running from globalization measures to government size and debt.     

Dynamic effects of trade openness on financial development

This paper employs the Pooled Mean Group (PMG) approach of Pesaran et al. (1999) to study the dynamic effects of trade openness on financial development. The advantage of the PMG estimator over other dynamic panel econometric techniques is that it allows short-run coefficients, speeds of adjustment and error variances to vary across countries, with cross-country homogeneity restrictions only on long-run parameters. Our results spanning 88 countries over 1960–2005 show that a positive long-run relationship between trade openness and financial development coexists with a negative short-run relationship. But when splitting the data into different income or inflation groups, this finding is observed only in relatively low-income countries or high-inflation economies.     

Variation in the fiscal multiplier with the method of financing: evidence across industrial countries

Government spending has often varied with the business cycle to stimulate the economy and to revive economic conditions. However, the state of public finances has often necessitated higher borrowing to finance widening fiscal deficits. Indeed, recent austerity packages around the globe have crystalized the importance of fiscal consolidation against the backdrop of rising public debt. To shed light on recent debates regarding fiscal multipliers, the article estimates variation in these multipliers with the method of financing, using annual data for a sample of industrial countries. There is a large variation in the effects of expansionary and contractinary government spending shocks on economic variables within and across countries. The significant effects of negative government spending shocks (fiscal contraction) appear more prevalent than those of expansionary shocks on real output growth, price inflation and nominal wage inflation. Consistent with theory’s predictions, the fiscal multiplier is more likely to be negative when government spending is financed by issuing debt and less likely in the case of monetization. The evidence confirms concerns about the negative effect of higher debt and more expensive financing on private activity, countering the effectiveness of fiscal policy.     

Trade,finance or policies: What drives the cross-border spill-over of business cycles?

In this paper we investigate how income growth rates in one country are affected by growth rates in partner countries, testing for the importance of pairwise country links as well as characteristics of the receiving country (trade and financial openness, exchange rate regime, fiscal variables). We find that trade integration fosters the spill-over of business cycles, both bilaterally and as a country characteristic (trade openness). Results for financial integration are mixed; financial links as pairwise country characteristic are either insignificant or negatively signed (indicating a dampening of cross country spill-overs), but financial openness as characteristic of the receiving country amplifies spill-overs. We find no evidence for a role of the exchange rate regime. Finally, we find that higher government spending and debt reduces countries’ vulnerability to foreign business cycles, presumably through the effect of automatic stabilizers.     

Fundamentals and Sovereign Risk of Emerging Markets

We empirically assess the relative importance of various economic fundamentals in accounting for the sovereign credit default swap (CDS) spreads of emerging markets during 2004–2012, which encompasses the global financial crisis of 2008–2009. Inflation, state fragility, external debt and commodity terms of trade volatility were positively associated, while trade openness and a more favourable fiscal balance/GDP ratio were negatively associated with sovereign CDS spreads. Yet the relative importance of economic fundamentals in the pricing of sovereign risk varies over time. The key factors are trade openness and state fragility in the pre‐crisis period, the external debt/GDP ratio and inflation in the crisis period, and inflation and the public debt/GDP ratio in the post‐crisis period. Asian countries enjoy lower sovereign spreads than Latin American countries, and this gap widened during and after the crisis. Trade openness was the biggest factor behind Asia's lower sovereign spreads before the crisis, and inflation during and after the crisis. The results imply that external factors were paramount in pricing sovereign risk prior to the crisis, but internal factors associated with the capacity to adjust to adverse shocks gained prominence during and after the crisis.     

Trade partner diversification and growth: How trade links matter

We analyze the effects of a country’s export connections on its income growth using trade partner diversification (TPD) measures that capture the country’s relative importance in the international trade network. On top of the standard trade openness measures, TPD measures are shown to enter growth regressions positively and significantly, where one standard deviation increase in TPD is associated with a 1–1.5 percentage point increase in the annual growth rate. Threshold analyses show that TPD measures are positively and significantly correlated with growth in countries that have low financial depth, high inflation, low levels of human capital, or high trade openness.     

Can openness be an engine of sustained high growth rates and inflation?: Evidence from Japan and Korea

The effects of increasing openness on the growth rates of output and of the price level are examined for Japan and Korea. The framework of analysis is a seven-variable vector autoregressive (VAR) model, and the effects of changes in openness are evaluated by computing impulse response functions (IRFs). For both countries, shocks to trade openness are found to have significant, negative effects on economic growth and inflation in the short run, but no longer-run effects. Openness measures in financial markets also have negative effects on economic growth and inflation in Korea, whereas the effects are not significant in Japan. The findings appear consistent with some models in which a domestic economy may suffer a loss due to increased openness of an economy.     

Globalization, the output-inflation tradeoff and inflation

This paper provides comprehensive evidence on the relation between inflation and globalization, defined here as trade and financial openness, using a large cross-section of 91 countries over the period 1985-2004. We establish two main empirical regularities: both higher trade and financial openness (i) reduce central banks’ inflation bias, yielding lower average inflation and (ii) are associated with a larger output-inflation tradeoff. This evidence is at odds with the standard Barro-Gordon framework, which would require globalization to have a negative effect on the output-inflation tradeoff to yield lower equilibrium inflation, but it is consistent with a recent strand of new Keynesian models emphasizing the role of imperfect competition and nominal rigidities. Our findings also support the relevance of the time-inconsistency hypothesis, which underlies the theoretical models predicting a relation between globalization and inflation. For the OECD subsample, however, we do not find an effect of openness on inflation (the output-inflation tradeoff), suggesting that these countries have created an institutional framework for central banks that eliminates distortions due to the time-inconsistency problem.     

The effectiveness of fiscal spending in Croatia,Slovenia and Serbia: the role of trade openness and public debt level

Various structural characteristics of economies, directly or indirectly, affect the transmission from government stimuli to economic activity and determine the size of fiscal multipliers. In this article, we expand the standard Blanchard–Perotti fiscal SVAR model by incorporating the public debt and trade openness variables to assess the influence of these structural determinants on the effectiveness of fiscal spending in three selected former Yugoslav countries – Slovenia, Croatia and Serbia. The results confirmed the main hypotheses, which state that public debt level and trade openness significantly affect the effectiveness of fiscal spending through the means of reduction in size of fiscal effects in all countries analysed. When comparing internationally, this reduction tends to be more evident in countries with a higher degree of average public debt level and trade openness.     

Endogenous Financial and Trade Openness

The authors study the endogenous determination of financial and trade openness. They construct a theoretical framework leading to two-way feedbacks between financial and trade openness and identify these feedbacks empirically. They find that one standard deviation increase in commercial openness is associated with a 9.5% increase in de facto financial openness (% of GDP). Similarly, an increase in de facto financial openness has powerful effects on future trade openness. De jure restrictions on capital mobility have only a weak impact on de facto financial openness, while de jure restrictions on the current account have a large adverse effect on commercial openness. The authors investigate the relative magnitudes of these directions of causality using Geweke's (1982 ) decomposition methodology. They conclude that in an era of rapidly growing trade integration, countries cannot choose financial openness independently of their degree of openness to trade. Dealing with greater exposure to turbulence by imposing restrictions on financial flows is likely to be ineffectual.     

如何有效削减政府债务：保增长、调结构与稳金融

本文基于41个国家2001-2011年的动态面板数据,采用系统GMM估计研究了经济增长、产业结构升级和金融稳定对政府债务的影响。实证结果表明：经济增长和产业结构升级均有助于政府债务削减,且产业结构升级的作用要大于经济增长;与此同时,金融波动不仅对政府债务削减不利,还会通过边际效应削弱经济增长和产业结构升级在政府债务削减中的积极作用。上述结论意味着,在实践中,为有效削减政府债务,必须在确保金融稳定的前提下,坚持“保增长”和“调结构”双措并举,特别是充分发挥产业结构调整的积极作用,实现金融稳定和结构优化的经济增长。     

Nonlinearity between Trade Openness and Economic Development

This paper utilizes the instrumental variable threshold regressions approach to reassess the trade–development link. It finds evidence that trade openness contributes to uneven development. Greater trade openness tends to have beneficial effects on real development of high‐income countries. For low‐income ones, however, trade openness appears to influence real income in a significant and negative way. The data also reveal that greater trade openness has a positive effect on capital accumulation, productivity growth, and financial development in high‐income countries, but a negative impact in low‐income ones.     

INTERACTIONS BETWEEN FINANCIAL DEVELOPMENT AND TRADE OPENNESS

This paper empirically investigates the interaction between financial development and trade openness through simultaneous‐equation systems. The identification and estimation of the systems rely on the methodology of identification through heteroskedasticity proposed by Rigobon (2003). Using a panel consisting of 70 countries over the period 1960–2007, we find a two‐way causal relationship between financial development and trade openness. A better‐developed financial sector induces higher openness to trade, while higher openness in goods market stymies financial development. And such findings hold well for low‐income, high‐inflation, or low‐governance countries.     

Public debt and financial development: A theoretical exploration

In countries where the government is the major recipient of bank lending, public debt is likely to harm financial development. Moreover, the lower the financial depth, the greater the adverse effects of public borrowing on financial development and macroeconomic outcomes.     

Assessing fiscal episodes

In an OCDE panel, for the period 1970–2010, we assess the effects of fiscal consolidation episodes, with four different definitions. Our results reveal that lower final government consumption increases private consumption in three out of the four approaches, when a fiscal consolidation occurs, and the debt ratio is above the cross-country average. The magnitude of these coefficients is higher for countries with lower debt levels, implying more successful consolidations associated with reduced crowding-out effects. There is some evidence of non-Keynesian effects for both private consumption and private investment, and the effects of social transfers on private investment tend to be negative, both in the short and long run. In a financial crisis, such effects are also more prone to happen. Finally, raising long-term interest rates reduces per capita private investment.     

Trade openness and government size of small developing countries

This paper examines the causal effect that trade openness has on government size in small developing countries (SDCs). We use the construction of the trade cost variables based on Baltic Dry Index in primary goods as instruments of trade openness to address the endogeneity issue. We find that the increase in trade openness leads to an increase in government size: a 1 percent expansion in trade openness (trade GDP ratio) raises government consumption over GDP ratio by approximately 0.1–0.2 percentage points on average. Its quantitative significance emphasizes the importance of rethinking the costs and benefits of trade openness for SDCs.     

The non-linear impact of monetary policy on international reserves: macroeconomic variables nexus

This paper employs panel smooth transition regression models to investigate the nonlinear effects of two monetary policy proxies (i.e., real exchange rate return and real interest rate differential) on the international reserves—macroeconomic variables nexus. The panel data set includes the fourteen G-20 countries during the period 1991–2012. Empirical results show that the marginal effects of the macroeconomic variables (savings, terms of trade, public debt, capital account liberalization, economic growth, and trade openness) on international reserves are non-linear and vary with time, the proxies and countries, not linear and constant derived from traditional linear model. Currency devaluation policy (against the US dollar) can non-linearly enlarge the positive contribution of trade openness and public debt on international reserves, and non-linearly reduce the negative impact of terms of trade on international reserves, as the Marshall–Lerner condition holds. Expansionary monetary policy (through the decrease in domestic interest rates) can strengthen the positive effects of public debt, trade openness, and economic growth on international reserves. The precautionary and mercantilist views of reserves holdings are partially supported.     

Performance budgeting: effects on government debt and economic growth

This article examines the effects of performance budgeting on government debt and economic growth rates. The results show that countries with a higher share of ministries using performance targets in budget negotiation tend to have lower government debt and higher GDP growth rates. A simple fixed-effect model shows similar results. The evidence suggests that these results hold only in those countries with relatively lower corruption.     

Trade-threshold Effect on Inflation in Tunisia: New Evidence Resulting from a Nonlinear Approach

Trade openness is an important determinant of the inflation process. The effect of trade openness on inflation, however, is still an issue of debate at both theoretical and empirical levels. This study tried to provide a contribution to the literature by examining the relationship between inflation and trade openness in Tunisia over the period 1975Q1-2015Q4 using a nonlinear model. The originality of this study stems from the fact that it is the first investigation considering both the Residual-Based Tests for Cointegration in Models with the Regime Shifts and Threshold Regression model. The linear model confirms the existence of a positive relationship between inflation and trade in Tunisia. Yet, considering the nonlinear model, trade openness growth and Consumer Price Index (CPI) inflation growth show a statistically significant negative link as long as the trade openness evolution does not exceed the threshold. Nevertheless, if the trade openness growth is higher than the threshold, integrating the trade positively affects CPI inflation. Furthermore, a positive influence of Money supply growth on this type of inflation was noticed in Tunisia in all the considered regimes proving the effect of monetary factors on inflation level. Consequently, trade openness could be used to control inflation in Tunisia.