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

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.     

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 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.     

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.     

Potential Growth and Inflation: Estimates for Australia, the United States and Canada

Estimates of potential output growth for Australia, the United States and Canada are presented and analysed in this article. We define potential growth as that growth rate consistent with a steady (domestic component of the) inflation rate (SIRG). At around 4 per cent per annum, Australia's SIRG has been relatively stable for the past 30 years, which seems inconsistent with the view that wide‐ranging microeconomic reform in the 1990s raised growth potential. However, we show that the reduction in employment growth in Australia from the 1980s to the 1990s may account for the absence of a rise in potential growth. In Canada and the United States the SIRGs are closer to 3 per cent, and we explore the reasons why potential growth estimates are higher for Australia than for North America. We also discuss why Australia's growth averaged less than its potential in the 1980s and 1990s and the possible use of our estimates for monetary policy purposes.     

Long-run equilibrium between budget deficits and long-term interest rates

Recently, there has been much concern about the size of federal budget deficit and its impact on interest rates. The peace time recovery after the 1981–1982 recession was the longest in U.S. history, accompanied by the largest budget deficit to GDP ratios. The present study investigates the effects of cyclically-adjusted federal deficits on long-term interest rates for 1970:1–1991:2. Using Johansen-Juselius procedures, we find evidence of a long-run relationship between federal budget deficits and long-term interest rates.     

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.     

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.     

Has the structural break slowed down growth rates of stock markets?

In this paper, we use the common structural break test suggested by Bai et al. (1998) to test for a common structural break in the stock prices of the US, the UK, and Japan. On the basis of the structural break, we divide each country's stock price series into sub-samples and investigate whether or not the structural break had slowed down the growth of stock markets. Our main findings are that when stock markets are modelled in a trivariate sense the common structural break turns out to be 1990:02, with the confidence interval including several episodes, such as the asset price bubble when housing prices and stock prices in Japan reached a peak in 1988/1989, the early 1990s recession in the UK, the business cycle peak of July 1990, the August 1990 Iraqi invasion of Kuwait and the March 1991 business cycle trough. Annual average growth rates suggest that the structural break has slowed down the growth rate of the US, the UK and Japanese stock markets.     

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.     

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%.     

An empirical investigation into the impact of US federal government budget deficits on the real interest rate yield on intermediate-term treasury issues, 1972–2012

This study provides new empirical evidence on the impact of the federal budget deficit on the real interest rate yields on intermediate-term debt issues of the US Treasury, represented herein by the ex post real interest rate yields on 3-year Treasury notes and 7-year Treasury notes, two interest rate measures that have received essentially no attention in the economics and finance literature in recent years. This study is couched within a loanable funds model that includes two ex post real interest rate yields, the monetary base as a per cent of GDP, the change in per capita real GDP, net financial capital inflows as a per cent of GDP and the budget deficit as a per cent of GDP. This study uses annual data for the study period 1972 to 2012, a time period that includes ‘quantitative easing’ monetary policies by the Federal Reserve. Two-stage least squares estimations reveal that the federal budget deficit, expressed as a per cent of GDP, exercised a positive and statistically significant impact on the ex post real interest rate yields on both 3-year and 7-year Treasury notes, even after allowing for quantitative easing and other factors. The study also considers the time period 1980 to 2012 and offers simple robustness testing.     

Lost in transition: Life satisfaction on the road to capitalism

In the 1990s transition from socialism to capitalism in Eastern Europe life satisfaction followed the collapse and recovery of GDP, but failed to recover commensurately. By 2005, with GDP averaging about 25 per cent above its early 1990s level, life satisfaction was typically back to its earlier level, but was arguably still below pre-transition values. Increased satisfaction with material living levels occurred at the expense of decreased satisfaction with work, health, and family life. In the decade of the 1990s, disparities in life satisfaction increased with those hardest hit being the less educated and persons over age 30; women and men suffered about equally.     

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.     

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.     

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.     

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.     

A Theory of Growth and Threshold Inflation with Estimates

For an inflation targeting Central Bank, a precise estimate of the threshold inflation in the economy is important. Existing studies provide estimates without any coherent theory of growth and threshold inflation and hence suffer from several limitations about concept and measurement. The present paper attempts to develop such a theory to establish a stable steady state growth solution. It also operationalizes the theory through a model with support from the Indian data for specific components of the model to derive the required functional form. Final estimates in India with annual data from 1995–96 to 2017–18 show that the threshold inflation and associated optimal growth vary considerably as rates of fiscal deficit and current account deficit on the balance of payments vary. The current combinations of the long term four policy targets of 4% inflation; 8% growth; 6% fiscal deficit (to GDP); and 2% current account deficit (to GDP) are internally inconsistent and hence not achievable. Now that there is an opportunity to revise the inflation target for the period after March 2021, the present paper argues for choosing from the menu of internally consistent options for all these four policy targets to avoid unnecessary costs.