The accuracy of IMF crises nowcasts

The International Monetary Fund (IMF) provides loans to countries in economic crises as a lender of last resort. IMF loan approvals are tied to policy reforms and quantitative targets that reflect the IMF’s crisis assessment. An extensive literature scrutinizes the efficacy of IMF loan programs, instead, we examine the accuracy of the IMF’s crisis assessments (nowcasts) that predicate program designs. Analyzing an unprecedented 602 IMF loan programs from 1992 to 2019, we contradict previous findings that IMF nowcasts are generally optimistic. Disentangling the structure of the IMF’s nowcast bias, we find the IMF systematically overestimates high-growth recoveries GDPs, while low-growth recoveries for low-income countries (LICs) are underestimated. In contrast, non-LICs’ nowcasts exhibit no statistically significant optimistic and pessimistic bias. Interestingly, shorter nowcast horizons do not improve accuracy, and GDP growth nowcasts improved substantially since 2013, while inflation nowcasts remain inefficient. We also isolate the sources of IMF nowcast inefficiencies according to ((i) program objectives, ((ii) program conditionality type, ((iii) geographic regions, ((iv) global crises, and ((v) geopolitics (elections, conflicts, and disasters).     

Transatlantic relations and the global economy

An Atlantic partnership has served for half a century to foster economic cooperation, but it is at risk today. This paper examines the reasons, including the growing importance of Asia, the changing nature of the economic problems facing the Atlantic partners, and limits on the scope for policy coordination resulting from changes in views about the best use of key policy instruments. The paper then proposes institutional reforms: The G-7 Summits should be replaced by informal meetings between leaders of the industrial countries and those of systemically important developing countries. European representation in the IMF should be consolidated, and the Fund’s Executive Board should be reorganized.     

Influence of the EU (and the IMF) on domestic cutback management: a nine-country comparative analysis

ABSTRACT

The influence of the EU (and the IMF) on domestic cutback management were studied in nine European countries. In this concluding article, a cross-country comparative analysis is presented. The influence of the EU and the IMF being most evident in bailed-out countries, we first take a closer look at the loan programmes in Greece, Ireland, Portugal, and Spain, plus the hardly-known earlier bailouts in Hungary and Latvia. We then turn to two factors that influence cutbacks and reforms: economics and politics. Finally, the concept of the influence of the EU (and the IMF) is differentiated into degrees and types of influence.     

Does economic liberalization promote economic growth in Pakistan? An empirical analysis

The study aims to examine the short and long term impacts of economic liberalization on economic growth in case of Pakistan from 1971 to 2011. Economic liberalization consists of reforms in both trade liberalization and financial liberalization. This study contributes to the existing literature by constructing an economic liberalization index using principal component analysis. Our results show, firstly, that economic liberalization reforms have a positive impact on economic growth in the short run. However, trade liberalization is negatively associated with economic growth in the long-run. Secondly, the estimated coefficients through rolling window show that impact of economic liberalization on real GDP is unstable during the selected period of sample. This study recommends to policy makers to enhance human capital by having more expenditure on education sector. In addition, financial reforms by way of a sectoral credit allocation should be introduced to further promote the economic growth.     

IMF Conditionality and Objections: The Russian Case

Emerging economies in crisis typically request assistance from the International Monetary Fund (IMF). After evaluating the situation, the IMF makes a loan available to the country, conditional on certain policy reforms. Governments usually resist many of these measures and negotiation ensues. This paper analyzes the most contentious measures of IMF conditionality in the context of Russia after the August 1998 crisis. The most discussed measures include the budget deficit, structural reforms, and exchange rate policy. Our analysis suggests that to some extent the disagreement arose because the IMF is focused on changing steady states somewhat ignoring the transition path, while the Russian government is preoccupied with transitional dynamics without a clearly defined steady state concept.     

Continuity and Change in Public Policy: Redistribution,Exclusion and State Rescaling in Turkey

This article discusses potential reasons for the continuities in the broader policy agendas of capitalist states, despite radical shifts in economic policies, by employing the state‐rescaling framework. Its main thrust is that, even though centrally designed policy programs mainly aim to give direction to the dynamics of the market economy, the institutional (re)structuring needed to operationalize such policy measures has been shaped around a politics of redistribution, a product both of the exclusionary results of past policies and the negative results of the newly introduced policy programs. This dialectical tension turns state rescaling into a political exercise in solving, and reproducing, ‘systemic crises’. The article examines the history of state rescaling in Turkey to develop these arguments.     

The policy environment and relative price efficiency of Egyptian private sector manufacturing: 1987/88–1995/96

We study the impact of policy and institutional constraints, and reforms undertaken to remedy them, on relative price efficiency and cost of the private manufacturing sector of Egypt. We undertake this study using a generalized cost function, which subsumes the standard neoclassical cost function as a special case. This approach allows us to assess the impact of such constraints, which include labor market, energy and financial sector ones, on relative prices and the structure of production, including factor demands, shares and cost. Our findings indicate the presence of substantial distortions in relative prices, and hence on cost, due to the policy environment. We also find improvements in relative price efficiency and cost performance as a result of policy reforms initiated to remove the constraints. Copyright © 2007 John Wiley & Sons, Ltd.     

Political Variables in Cross-country Growth Analysis

The recent boom in cross-country growth analysis has renewed the empirical interest in political sources of economic growth. A large number of studies have tested political variables in growth regressions and a very heterogenous set of variables has been proposed to measure economically relevant differences in the political systems of countries. This paper distinguishes five categories of relevant political variables: democracy, government stability, political violence, policy volatility, and subjective perception of politics. For each of these categories, the specification, testing method, and results of the most relevant studies are presented and are critically discussed. The paper concludes that measures of democracy are least successful and measures of policy volatility and subjective perception of politics most successful as explanatory variables in cross-country growth regressions.     

The effectiveness of European active labor market programs

Active Labor Market Programs are widely used in European countries, but despite many econometric evaluation studies analyzing particular programs no conclusive cross-country evidence exists regarding “what program works for what target group under what (economic and institutional) circumstances?”. This paper aims at answering this question using a meta-analysis based on a data set that comprises 137 program evaluations from 19 countries. The empirical results of the meta-analysis are surprisingly clear-cut: Rather than contextual factors such as labor market institutions or the business cycle, it is almost exclusively the program type that seems to matter for program effectiveness. While direct employment programs in the public sector frequently appear detrimental, wage subsidies and “Services and Sanctions” can be effective in increasing participants' employment probability. Training programs – the most commonly used type of active policy – show modestly positive effects.     

A Perfect Impasse? Cuba's Move Towards the Market and the United States' Move Towards Cuba

This article first analyses the internal economic trajectory of the Cuban economic reforms and evaluates their effectiveness in delivering the extensive and intensive development needed to correct Cuba's structural and economic imbalances. It concludes that without the lifting of the US economic sanctions success will at best be only partial, with serious implications for long‐term stability. The article then evaluates the reasons for the US economic sanctions against Cuba and argues that while the embargo policy might have failed to topple the Cuban communist regime, it has served other, largely unacknowledged, purposes that are important in explaining why the policy has persisted. The article concludes by suggesting that the US is not likely to jettison the sanctions regime while Cuba's single‐party, state‐led economic system remains. At the same time, Cuba is not likely to jettison its single‐party system while the sanctions remain.     

The subordination of the gender equality objective: the National Reform Programmes and ‘making work pay’ oplicies

The streamlining of the Lisbon strategy has introduced new integrated guidelines for economic policy and employment strategy and a new report format––the National Reform Programme. In the first year of this new reporting mechanism, Member States have paid less attention to gender mainstreaming and gender equality objectives, not least because the gender equality guideline has been removed. Streamlining has further exposed the narrow and instrumental focus on gender equality measures in the Lisbon process as a means of raising the employment rate rather than a broader concern for equal opportunity. This narrow gender equality approach also dilutes the efficacy of the economic and employment policies that are advanced. Some positive steps to advance gender equality continue to be taken, but the reforms are partial, uneven and coexist with negative developments. We illustrate this with an evaluation of the policy trajectory in relation to the ‘making work pay’ agenda for low‐waged workers (tax/benefit reform, minimum wages, childcare and parental leave). We conclude that this latest reform to the Lisbon process has exposed the enormous amount of political work and capacity building that is needed to mainstream gender issues across the whole field of economic, employment and social policies.     

RETHINKING TAX POLICIES: NEW IDEAS FROM A DEAD ECONOMIST

Economic analysis of tax policy has tended to follow a macro approach in which the state is the focal point and the individual taxpayer is marginalised. An alternative micro approach, exemplified by the classic work of Wicksell, leads to an analysis of the seemingly inexorable growth of the public sector in a democracy and the constitutional constraints necessary to safeguard economic prosperity and individual liberty.     

Do constraints created by economic growth targets benefit sustainable development? Evidence from China

An economic growth target is a declaration by policy authorities of commitment to that target and the corresponding allocation of resources. The constraints created by economic growth target are an important economic management method in China, which has helped China's economy to achieve remarkable achievements. However, it has also brought about serious environmental problems, threatening China's sustainable development. Using the data about economic growth targets in the work reports of 30 Chinese provincial governments from 2006 to 2017, this paper constructs several spatial measurement methods, such as the spatial Durbin model, to examine the constraints created by economic growth target's impacts on air pollution. The main conclusions are as follows. First, a significant “U-shaped” relationship exists between the constraints created by economic growth targets and air pollution. Second, the spatial Durbin model analysis revealed that PM_2.5 across China's provinces display significant positive spatial spillover effects and spatial agglomeration characteristics. Third, the direct, indirect, and total effects of constraints created by economic growth targets on air pollution are all statistically significant and depict a “U shape.” Finally, the constraints created by economic growth targets have an apparent threshold effect on air pollution, and the inhibiting effects increase with human capital and industrial restructuring. However, with the increase in foreign direct investments, constraints created by economic growth targets may increase air pollution. The conclusions of this paper are of great significance for improving the management of local government economic growth targets and sustainable development.     

Monetary Policy; Questions of Adequacy, Design and Presentation

In this article John Flemming considers three possible modifications to the presentation and design of monetary policy. He argues first that it is odd to forecast the target variable – inflation – when it is policy to do what is necessary to deliver the target. What would be interesting would be a forecast of what interest rates might prove necessary. Secondly he considers the possibility that with monetary policy dedicated to price stability and fiscal policy to paying for public expenditure – and stabilising output – a third control might be appropriate to stabilise the financial system. Finally, and overlapping with the last, he explores ways in which asset price changes might be reflected in a broader measure of inflation – as recently suggested by Charles Goodhart and the IMF.     

Do tax reductions stimulate firm productivity? A quasi-natural experiment from China

Tax reductions for firms in the real economy are important reforms to address slowdowns in economic development in the complex current social and economic situation. To deeply explore the influence of tax reductions on firm development, this article considers firm total factor productivity as an indicator. A policy allowing accelerated depreciation of fixed assets implemented in 2014 and 2015 is taken as a policy shock to construct a gradual difference in difference (DID) model. Based on data from listed companies in China from 2010 to 2018, this article studies the influence of the policy on firm total factor productivity. The empirical results show that the policy significantly and sustainably improved the total factor productivity of the pilot firms. The policy improved productivity mainly by increasing corporate investment in fixed assets, stimulating R&D spending, and alleviating internal financing constraints. Further results reveal that the productivity effect of the policy is more prominent in non-state-owned enterprises and labor-intensive or growth-oriented enterprises. The research in this article helps deepen the understanding of the micro-foundations of the effects of tax reductions and provides a reference to leverage the micro-effects of such policies.     

Understanding the effects of growing central bank balance sheets on investment

What role does unconventional monetary policy – and particularly unconventional policies such as private asset purchases under quantitative easing or lender of last resort scheme – play in influencing economic growth directly? The literature looks at the effects of post-2007 central bank asset purchases on GDP growth and – in limited cases – on investment. Yet academics and central bankers have not tried to understand the effects of private securities purchases alone, while controlling for broader macroeconomic effects. This article summarises the existing literature, documenting the widespread use of private securities purchases by central banks across the world. The literature shows the potentially beneficial effects of these purchases, pointing the way for further scholarly work about central banks' private securities purchases.     

What Are the Lessons from Post‐Communist Transitions?

This paper provides a review of the literature on post‐communist transitions. It outlines the debate between the proponents of rapid reforms and the advocates of neo‐institutionalism. Providing evidence from the transitional countries, it suggests an alternative approach, explicitly acknowledging the impact of two categories of constraints on reforms.     

Bogotá's Left Turn: Counter-Neoliberalization in Colombia

For the political left, decentralization has increased both the appeal and the importance of governing the city, and yet sharp constraints limit the left's transformative potential when it controls that level of government alone. Bogotá is an important case in point under the recent mayoral administration of Gustavo Petro (2012–15), a demobilized guerrilla leader who sought to implement a series of urban policy reforms that together represent one of the most substantively radical and intellectually coherent attempts to challenge neoliberalism in all of Latin America. Focusing on the four policy arenas through which Petro hoped to transform the city (environment, housing, transport, and trash collection), the article documents the veto power of the firms whose privileges he threatened, as well as the tools through which they derailed reform. In contrast to the failure of his political economy agenda, Petro was indeed able to enact a number of progressive social policy reforms precisely because they did not threaten the profitability of the city's entrenched growth machine.     

Entrepreneurship and Post‐socialist Growth*

We use a rich regional data set to obtain a statistical characterization of the relationship between entrepreneurial activity and economic growth within post‐Soviet Russia. Russia is a useful laboratory for evaluating links between entrepreneurial activity and growth because of the striking variation in initial conditions, the adoption of policy reforms, and entrepreneurial activity observed across its large number of regions in the early stages of transition. Russia has also experienced striking regional variation in subsequent growth. Conditional on variations in initial conditions and policy reform measures, regional entrepreneurial activity exhibits a statistically and quantitatively significant relationship with subsequent economic growth.     

Interactions between financial constraints and economic growth

The financial economy and the real economy are interconnected through various, complex, and evolving transmission mechanisms, whose literary coverage is far from comprehensive. In this context, we wish to contribute to the literature on the interactions between financial constraints and economic growth. We introduce financial dynamics in the R&D-based growth literature, by bringing Bernanke, Gertler and Gilchrist’s (1999) informational asymmetries into Romer’s (1990) growth model. With the developed framework, our main goal is to examine if and how such asymmetries impact economic growth. We find that the overall impact of this form of financial constraints on long-term growth is negative.