The Macroeconomic Outlook

This two-year quarterly forecast from the Access Economics Murphy (AEM) model updates that presented in the 2nd quarter 1992 issue of the Australian Economic Review.
The economic recovery is patchy, with only public final demand and housing investment moving forward decisively, but could broaden in 1993, if private business fixed investment begins increasing. It has fallen by a recession-inducing one-third since the middle of 1989.
GDP growth could rise from a mediocre 2.4 per cent in 1992–93 to a strong 4.3 per cent in 1993–94.
Unemployment may remain around 11 per cent for the remainder of 1992–93, before falling to a year-average level of about 10 per cent in 1993–94.
CPI inflation under 2 per cent per annum on a year-on-year basis is likely in 1992–93 but, with economic recovery and the flow-through effects of the depreciation, it is forecast to rise to 4 per cent per annum in 1993–94. The current account deficit is rising with economic recovery, and by 1993-94 could be 5 per cent of GDP, compared with a sustainable level of 3 to 3.5 per cent.
An assessment of the accuracy of the AEM model and government official economic growth forecasts in the recession years of 1990–91 to 1992–93 was conducted, using the forecasts from the Business Review Weekly's panel as a reference point. The high accuracy ranking of the AEM forecasts is consistent with international evidence that the most accurate forecasts are model-based with judgmental adjustments. The official forecasts met international standards of accuracy from 1978–79 to 1989–90, and the recent fall in their performance is puzzling.     

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 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 distributional impact of unification and the 1992–93 recession on West German households

The 1992–93 recession in the western states of Germany has been attributed, in substantial measure, to the macroeconomic consequences of policies to finance unification. Studies of the costs of unification have not attempted to measure the burden of the recession. We estimate a dynamic, panel model of household incomes using data from the German Socio-Economic Panel (GSOEP) and use it to forecast what these incomes would have been in 1992–94 without a recession. Using a ratio of actual to forecast incomes, we compare the relative burden of the recession across households. Our findings suggest that western households below the median income bore the brunt of the combined impact of unification and the recession of 1992–93.
JEL classification: P3, D3, E3.     

PoJjcy and the Australian Economy, 1977

At the end of the first quarter of 1977 the available economic indicators, while as usual far from univocal, still give cause for serious concern about the health and direction of the Australian economy. With no significant expansionary factors operating in the economy in 1977 other than the revival in the mining industry and in some aspects of business investment, and the various arms of economic policy being set almost entirely in a restrictive stance, aggregate output would appear to be either flat or declining modestly at the present time. On the basis of a continuation of present policies we would anticipate growth in real non-farm GDP of only 2 to 3 per cent in both 1976–77 and 1977–78, with unemployment continuing to increase until well into 1978. Given the stimulus to inflation arising from the 1976 devaluation and from the wage effects of the Medibank changes, the rate of increase in the consumer price index would seem likely to be 14 to 15 per cent in 1977, even if a partial wage indexation policy could be sustained and whether or not a one quarter wage/price deferment comes into effect. But government pressure on the Arbitration Commission for a reduction in real wages has placed the wage indexation system in jeopardy, and there is now considerable uncertainty about the methods of wage fixation which will obtain in 1977–78. This article surveys some aspects of recent developments and considers some policy options available to the government.     

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 International Economy — A Survey

In most of the major world economies the hesitancy evident toward the end of last year has dissipated and the cyclical upswing in economic activity was well advanced by the middle of 1976, with the recovery showing particular strength in the first half of 1976 inthe United States and in West Germany. Even so industrial production had not yet returned, by the end of June 1976, to the previous cyclical peak in any of the major economies. With the OECD countries in aggregate sure to achieve a real growth rate of 4 per cent in 1976, and quite possibly an appreciably higher rate, the attention of many national and international policy makers is turning to ways of moderating the recovery so that inflationary pressures can be minimised. For in spite of the depth of the 1974/75 world recession the outlook for inflation remains threatening, much more so than at the corresponding stage of the previous cycle in 1972. In the twelve months to May 1976 consumer prices rose by 9.0 per cent in all OECD countries and this figure is disturbingly high for the trough of a serious recession. World commodity prices have risen about 35 per cent in dollar terms in the past year; as in the 1973–74 boom the major economies are now moving into an upswing simultaneously, thus compounding possible demand effects on inflation; business investment has fallen sharply in all countries during the recession, and only in the United States is a strong recovery in investment currently in evidence. The rate of growth of wages has however moderated in most countries, reflecting weak labour market conditions, lower consumer price increases and in countries such as United Kingdom and Canada the successful implementation of incomes policies. With output increasing, the rate of growth of unit wage costs has in most cases dropped sharply.     

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.     

China’s Experience with Indexed Government Bonds, 1988–1996: How Credible Was the People’s Republic’s Anti-Inflationary Policy?

The People's Republic of China introduced indexed government bonds in the face of the inflation panic of 1988–89 and reintroduced them when inflation surged upward again in 1993. Measures of inflation expectations—as derived from the trading prices of these indexed bonds—suggest that the government gained credibility from its ability to contain inflation in 1989. But the government's failure to quickly halt the 1993–95 inflation led, by late 1994, to soaring inflation expectations and, ultimately, a heavy financial penalty for the government as the 1992 and 1993 bond issues matured while inflation was still high.     

INFLATION TARGETING AND THE ECONOMY: LESSONS FROM CANADA'S FIRST DECADE

Inflation targeting has become the centerpiece of the monetary policy framework in a number of industrial countries and emerging economies. The first part of this article examines the Canadian experience with inflation targeting since its introduction in early 1991 and various issues that require resolution in establishing such a framework. It also examines the way inflation targets deal with demand, price, and productivity shocks. The second part focuses on Canada's economic performance during the 1990s. Factors other than monetary policy - most notably private sector restructuring and the fiscal situation in the first half of the decade - played an important role in the sluggishness of the recovery from the recession of 1990–91. Trend growth in Canada during the 1990s was lower than in earlier periods and than U.S. trend growth over the same period. The article examines the role of such factors as productivity growth and participation rates in explaining the differences. I conclude that a good monetary policy is necessary but not sufficient for good economic outcomes.     

From economic decline to the current crisis in Italy

The objective of this paper is to show that the current global economic crisis, into which Italy also fell in 2008, represents just the last step of a long declining path for the Italian economy which began in the 1990s, or to be more precise in 1992 and 1993. It is argued that the reasons that explain the long Italian decline, and partly also the deeper recession today, as well as the lack of recovery from the current crisis, can be found in the past reforms of the labour market. In particular, the labour flexibility introduced in the last 15 years had, along with other policies introduced in parallel, cumulative negative consequences on the inequality, on the consumption, on the aggregate demand, on the labour productivity and on the GDP dynamics.     

Quantifying the Effect of the GST on Inflation in Australia's Capital Cities: An Intervention Analysis

This article examines the magnitude and duration of the effect of the Goods and Services Tax (GST) on inflation in Australia's eight capital cities using the Box and Tiao intervention analysis and quarterly data spanning from 1948:4 to 2003:1. We found that the GST had a significant but transitory impact on inflation only in the September quarter of 2000 when this new tax system was implemented. In this quarter inflation showed an additional increase of 2.6 per cent in Sydney (minimum effect) and 2.8 per cent in Australia as a whole, and the figure for Hobart was 3.3 per cent (maximum effect). Based on Wald test results, we also found some evidence that there is no significant (or substantial) difference in the average price changes among capital cities. We could not reject the null hypothesis that the GST increased the consumer price index by 2.8 per cent across the board in various cities. These results are also consistent with previous studies and surveys.     

AN ESTIMATE OF AVERAGE INCOME AND INEQUALITY IN BYZANTIUM AROUND YEAR 1000

Using recent economic statistics from the peak period of Byzantine political and economic influence, we estimate the average income around the year 1000 to have been about 6 nomismata per capita per annum. This is then translated into current prices using two independent methods. They both yield an estimate around $PPP 640–680 in 1990 international prices. It is argued that this amount is some 20 percent below an average estimate of Roman incomes at the time of Augustus (around year one). Assuming that most of income differences in Byzantium were due to the differences in average incomes between social classes, we estimate the Gini coefficient to have been in the range between 40 and 45.     

Barking Up the Wrong Tree: A Reply to Haynes & Husan

The Albanian economy in the 1990s experienced a rapid recovery from its near-collapse in 1992. The rapid economic growth between 1993 and 1996 was exceptional by East European standards, and represented the highest rate of sustained economic growth of all transition economies. This investigation indicates that the standard explanations for recovery and growth in transition economies, such as the pace of economic reform or the levels of domestic and foreign investment, do not adequately explain the rapid growth of the Albanian economy. Factors specific to Albania also need to be considered. The main conclusion drawn here is that the success of the Albanian economy in the mid-1990s rested largely upon the inflow of remittances from Albanians working abroad. These remittances are shown to have been much greater in value than was previously assumed by the IMF: in the region of $700 million per annum rather than $400 million. Remittances are also found to have played a much greater role in Albania's economic recovery than was previously recognised. It is demonstrated that the rise of pyramid investment schemes in 1996 was closely linked to the inflow of remittances. Such schemes are also found to have played a part in fuelling the rapid economic growth in the Albanian economy, before their collapse in 1997.     

The Suffering Middle: Trends in Income Inequality in Australia, 1982 to 1993–94

This article analyses labour force trends, household composition and income inequality between 1982 and 1993–94, principally using unit record tapes for the two years produced by the Australian Bureau of Statistics. The results suggest that earnings and private income inequality increased during these 11 years. However, increasing progressivity in the income tax and, in particular, the government cash transfer system fully offset this growing market-based inequality. Summary inequality measures thus suggest that the distribution of disposable (post-tax/transfer) and equivalent disposable income was much the same in 1993–94 as in 1982. However, this apparent stability disguised real income gains at the top and bottom of the income spectrum and losses for the middle 50 per cent of Australians.     

Sectoral variability and the foundations of optimal inflation rate

The recent monetary search models argue that the real effects of inflation on economic activity can be gauged through relative price variability (RPV). Our study uses a large panel data of 32 developed and emerging European economies to test the relationship between inflation and RPV. We use a panel threshold model to explore the regime-specific effects of inflation on RPV. Our results confirm a non-linear profile of the relationship between inflation and RPV. Consistent with the monetary search models, our results show that the effects of inflation on the RPV are more significant in its low (below 0.792% per annum) and high (beyond 2.064% per annum) regimes. Finally, we also report a strong moderating role of central bank independence (CBI) in the inflation–RPV relationship.     

明代GDP及结构试探

本文尝试利用现代国民经济核算方法研究明代GDP及其构成.利用历史文献提供的数据,并借鉴前人定量研究的成果,我们整理和估算了1402-1626年的明代主要经济变量,进而对明代经济进行总体描述,并和工业革命前的英国经济相比较.主要结论如下:明代整体经济增长不快,年均GDP增长率为0.29%;总经济规模有所增长,人均年收入没有明显变化,维持在平均6公石(391公斤)小麦上下;以1990年美元计值的人均收入平均为230美元,最高的年份也不到280美元;农业占GDP比重平均为88%,手工业和商业最高时也没有突破20%;政府税收与GDP之比为3%到9%,平均为5%,明中叶后军费开支占中央政府支出的60%到90%;年均积累率低估值为5.3%,高估值为9%.     

The properties of survey-based inflation expectations in Sweden

This article assesses the properties of survey-based inflation expectations in Sweden. The survey in question is conducted by Prospera once every quarter and consists of respondents from businesses and labour-market organisations. The article shows that inflation expectations measured in this survey tend to be biased and inefficient forecasts of future inflation. Moreover, evaluations of forecast accuracy show that these inflation expectations are worse predictors of inflation than those of a professional forecasting institution and also typically outperformed by a simple autoregressive model. Given that the true inflation expectations are captured by the survey, our results indicate that economic agents’ expectations formation process is suboptimal.     

An analysis of the informational content of New Zealand data releases: The importance of business opinion surveys

We examine the informational content of New Zealand data releases using a parametric dynamic factor model estimated with unbalanced real-time panels of quarterly data. The data are categorised into 21 different release blocks, allowing us to make 21 different factor model forecasts each quarter. We compare three of these factor model forecasts for real GDP growth, CPI inflation, non-tradable CPI inflation, and tradable CPI inflation with three different real-time forecasts made by the Reserve Bank of New Zealand each quarter. We find that, at some horizons, the factor model produces forecasts of similar accuracy to the Reserve Bank's forecasts. Analysing the marginal value of each of the data releases reveals the importance of the business opinion survey data—the Quarterly Survey of Business Opinion and the National Bank's Business Outlook survey—in determining how factor model predictions, and the uncertainty around those predictions, evolve through each quarter.