Showing papers on "Real gross domestic product published in 1997"

Follow the Leader: How Changes in Residential and Non-residential Investment Predict Changes in GDP

Abstract: This paper examines the effect of different kinds of investments on the business cycle. Specifically, it examines whether residential and non-residential investment Granger cause GDP, and whether GDP Granger causes each of these types of investments. The paper uses quarterly National Income and Products Data for the period 1959 to 1992. Under a wide variety of time-series specifications, residential investment causes, but is not caused by GDP, while non-residential investment does not cause, but is caused by GDP. Thus, housing leads and other types of investment lag the business cycle. The results also suggest that policies designed to funnel capital away from housing into plant and equipment could produce severe short-run dislocations.

Convergence in the age of mass migration

Abstract: Between 1870 and 1913 economic convergence among present OECD members (or an even wider sample of countries) was dramatic, about as dramatic as it has been over the past century and a half. What were the sources of the convergence? One prime candidate is mass migration. This paper offers some estimates which suggest that migration could account for very large shares of the convergence in labour productivity and real wages, though a much smaller share in GDP per capita. One might conclude, therefore, that virtual cessation of convergence in the interwar period could be partially explained by the imposition of quotas and other barriers to migration.The exportation of labourers and capital from old to new countries, from a place where their productive power is less to a place where it is greater, increases by so much the aggregate produce of wealth of the old and the new country.… Colonization, in the present state of the world, is the best affair of business, in which the capital of an old and wealthy country can engage.–John Stuart MillMill (1929 [1848])It must be emphasized that without the change in the proportions of the factors of production that occurs as a result of migration or population growth, differences in factor prices in various countries will persist, and the factors of production of the world as a whole will not be used to their best advantage.–Eli F. HeckscherFlam and Flanders (1991, 59). Heckscher understood that with impediments to trade or with specialization outside cones of diversification (a failure of ‘harmonic equilibrium’, in his words), factor price convergence would be incomplete and factor migration necessary to obtain factor price equalization.

Exports, export composition and growth : cointegration and causality evidence for Malaysia

Abstract: This paper comprehensively tests the export-led growth (ELG) hypothesis for Malaysia for the period 1955 - 90, using cointegration and causality testing based on Hsiao's synthesis of the Granger test and Akaike's minimum final prediction error criterion. The results provide support for the ELG hypothesis; aggregate exports Granger-cause real GDP and non-export GDP. This relationship is found to be driven by manufactured exports rather than by traditional exports.

The Human Development Index and changes in standards of living: Some historical comparisons

Abstract: The article compiles measures of the Human Development Index and also growth rates of real GDP/person adjusted for changes in mortality and leisure for 16 advanced economies since 1870. It is argued that relatively low life expectancy implies that the high income countries of 1870 had lower living standards than most of today's Third World but that since 1870 imputations for reductions in market work time have added more to growth than decreases in mortality. Overall, it seems clear that conventional measures of economic growth seriously understate the rate of improvement in living standards since 1870.

China 2020 : development challenges in the new century

Abstract: For China, swift growth and structural change, while resolving many problems, have created new challenges: employment insecurity, growing inequality, stubborn poverty, mounting environmental pressures, and periods of macroeconomic instability stemming from incomplete reforms. This report argues that China has the capacity to meet these challenges and sustain rapid growth because it has relative stability, a remarkably high savings rate, a strong track record of pragmatic reforms, a supportive Chinese diaspora, and a growing administrative capacity. These strengths can provide a platform for additional reforms needed in three major areas: First, market forces must be encouraged, especially through the reform of state enterprises, the financial system, grain and labor markets, and natural resources pricing. Second, the government must begin serving markets by building the legal, social, physical, and institutional infrastructure needed for rapid growth. Finally, integration with the world economy must be deepened by lowering import barriers, increasing the transparency and predictability of the trade regime, and gradually integrating with international financial markets. Chapter 2 enunciates the report's twin concerns -the pace and sustainability of China's growth- and examines China's growth potential over the long term using a simple model of growth and structural change. Chapter 3 argues that further separating the roles of government and markets and clarifying rights and responsibilities will help lay the foundations for sustained rapid growth and improve the quality of people's lives. Chapter 4 examines the five areas where government action is needed to manage the risks to the population that accompany societal change, including raising living standards for the absolute poor; providing financial security for the elderly; providing access to affordable health care; removing bias against women; and reducing high and prolonged unemployment. Chapter 5 compares the two routes China could take in giving agriculture high priority: obtaining grain self-sufficiency or using trade in agricultural products as a disciplinary device to encourage efficient domestic production. Chapters 6, 7, and 8 focus respectively on protecting the environment, integrating with the world economy, and ultimately fashioning the appropriate political vision to chart China's course into the year 2020.

Is There a Core of Usable Macroeconomics We Should All Believe In

Abstract: Real output in most advanced capitalist economies fluctuates around a rising trend. One can argue about whether it is best to think about that trend as passing through successive cyclical averages, defined in one way or another, or best to think of it as passing through cyclical peaks, or some other measure of "potential" output. While the outcome of that argument has consequences for macroeconomic theory, I will bypass it for now. The important observation is that, on the whole, the observed fluctuations around trend are contained within a moderately narrow corridor. Unemployment rates tend to run between, say, 5 percent and 10 percent in the United States. (Other countries have different typical ranges, and in each of them, the range can shift from time to time. It is important, theoretically and practically, to understand why; but that remains an open question.) There are notable exceptions to this generalization, of course, the most famous being the depression of the 1930's; but they are exceptions. Again it is important to know why fluctuations are so contained. This could reflect some natural equilibrating process, or it could reflect the intervention of automatic or discretionary government policy, or it could be a mixture of both. That is another issue on which opinions differ. I think it is part of the usable common core of macroeconomics that the trend movement is predominantly driven by the supply side of the economy (the supply of factors of production and total factor productivity) and that the appropriate vehicle for analyzing the trend motion is some sort of growth model, preferably mine. Now, what about those fluctuations around the trend of potential output? A moment ago I put the normal range of unemployment rates at 5-10 percent. By Okun's law I am talking about fluctuations of real GDP with an amplitude of 8-10 percent or so from peak to trough-contained, but not trivial. In my picture of the usable common core of macroeconomics, those fluctuations are predominantly driven by aggregate demand impulses, and the appropriate vehicle for analyzing them is some model of the various sources of expenditure. I am not so obtuse as not to have observed that the whole point of "real-business-cycle theory" is the assertion that these short-run motions of the economy are in fact supplydriven. But my view is that this explanation has been an empirical failure, or at best a nonsuccess. There are now two possibilities. As for the first, I entertain the hope that flexible, observant members of the real-business-cycle school, like Martin Eichenbaum and his coworkers, have come more or less to the same conclusion, and they have found ways to open up the fabric of their underlying model so that it will allow-or insist-that demand-side impulses play the dominant role in short-run macroeconomic fluctuations. Then this proposition is indeed part of the usable core of macroeconomics, and economists can go on to argue back and forth about the best way of modeling those demand-side forces. The other case is that the situation is as before, and the real-business-cycle school holds monolithically to the view that short-run fluctuations are just optimal supply-side adjustments to unforeseeable shocks to tastes and * Department of Economics, Massachusetts Institute of Technology, Cambridge, MA 02139.

Causality between the measured and underground economies in New Zealand

Abstract: We investigate some characteristics of the underground economy in New Zealand by testing for Granger causality between measured and ‘hidden’ real GDP in that country. We find clear evidence of causality from measured to hidden economic activity, but only weak evidence of causality in the reverse direction. This poses a dilemma for policy makers who wish to stimulate economic growth and also minimize the size of the ‘tax gap’.

The long march : a reform agenda for Latin America and the Caribbean in the next decade

Abstract: The Mexican peso crisis in 1994 brought about gloom, anxiety, and uncertainty in the LAC (Latin America and Caribbean) region. There is a general awareness among policymakers that additional reforms need to be undertaken if LAC economies are to grow more than 6 percent a year, which is the growth rate that is widely believed necessary to lower the number of people living in poverty in the region. The agenda proposed in this volume is based on recent theoretical and empirical work on the sources of economic growth and poverty reduction; on empirical measures of the LAC region's progress in terms of policies and economic factors that affect economic growth, and on comparisons between the LAC region and other rapidly growing regions. The report identifies items in the reform agenda required to consolidate macroeconomic stability in the region (see Chapter 1), a necessary condition for sustaining high rates of growth. It also specifies the additional structural reforms needed to accelerate growth in the medium and long term (see Chapters 2 and 3) and the policies required to broaden the reach of economic growth in order to confront the challenge of poverty reduction in the LAC region (Chapter 4). This three-pronged analysis has yielded a reform agenda for LAC in the next decade. This agenda comprises the following five broad policy areas: 1) quality investment in human capital; 2) efficient financial markets; 3) enhanced legal and regulatory environment; 4) quality public sector governance; and 5) fiscal strengthening.

Measuring and Comparing Business-Cycle Features

Abstract: Since the extensive work by Burns and Mitchell, many economists have interpreted economic fluctuations in terms of business-cycle phases. Given this, we argue that, in addition to usual model-selection criteria currently used in the profession, the adequacy of a univariate macroeconomic time series model should be based on its ability to replicate two important business-cycle features of the U.S. data—duration and amplitude. We propose several checks for whether univariate statistical models generate business-cycle features observed in U.S. gross domestic product (GDP) and find that many popular nonlinear models for the log of real GDP are no better at replicating the duration and amplitude features of the data than a simple ARIMA(1, 1, 0).

Population dynamics and economic development : Age-specific population growth rates and economic growth in developing countries, 1965 to 1990

Abstract: In theory rapid population growth forces capital to be spent upon nonproductive segments of the population and encourages the undercapitalization of the economy underemployment low wages and weak market demand. Rapid population growth is therefore often blamed for economic stagnation in less developed countries. Others however believe that rapid labor force growth is good for the economy. The authors conducted a cross-national study of the economic growth rates of 75 developing countries in which the annual average percentage change in real gross domestic product per capita is regressed from 1965 to 1990 on demographic models which incorporate either total population growth rates and labor force growth rates or age-specific population growth rates. The study found that an increase in the child population impedes economic progress while an increase in the adult population fosters economic development. This phenomenon may be due to demographic transition which allows a massive one-time boost in economic development as rapid labor force growth occurs in the absence of large and growing youth dependency. There may also be a demographic ratchet effect in which economies remain stagnant during baby booms but grow rapidly as baby boomers age and assume economically productive roles in society.

A Core of Practical Macroeconomics

Abstract: Macroeconomics-the part of economics that focuses on economic growth and economic fluctuations-has always been an area of great controversy and debate. Over 150 years ago David Ricardo argued with Thomas Malthus over the importance of supply versus demand in growth and fluctuations, much as real-business-cycle economists have argued with monetarists and Keynesians in recent years. The Keynesian revolution of the 1930's and the rational-expectations revolution of the 1970's, both questioning macroeconomic ideas of the time, were two of the most contentious episodes in the history of economic thought. Some view recent macroeconomic debates as so intense that they see macroeconomics as nothing more than competing camps of economists with no common set of core principles. I welcomed the opportunity to appear on this panel because, in my view, there is a set of key principles -a core -of macroeconomics about which there is wide agreement. This core is the outgrowth of the many recent debates about Keynesianism, monetarism, neoclassical growth theory, real-business-cycle theory, and rational expectations. The core is practical in the sense that it is having a beneficial effect on macroeconomic policy, especially monetary policy, and has resulted in improvements in policy in the last 15 years. In fact, new econometric models recently put in operation at the Fed largely reflect this core. This core is increasingly evident in undergraduate economics texts, and it also appears in graduate training, though in most Ph.D. programs there is much more emphasis on the newer and more controversial parts. Although there are different ways to characterize this core, I would list five key principles. I would start with the most basic and least controversial principle, focusing on longterm economic growth and the supply side of the economy. Over the long term, labor productivity growth depends on the growth of capital per hour of work and on the growth of technology or, more precisely, on movements along as well as shifts of a production function, as Robert Solow pointed out many years ago. If one adds to this labor productivity growth an estimate of labor-force growth, one gets an estimate of the long-run growth rate of real GDP, or what is typically referred to as potential GDP growth. This principle, the essence of neoclassical growth theory, provides a way to estimate and discuss the sources of long-term economic growth within the organizing structure of the growth accounting formula. Key policy questions to address within this framework, of course, are why potential GDP growth has declined and what can be done to raise it again. Is this first principle practical? Yes. Public policy economists at the Fed and the Congressional Budget Office and private industry economists regularly use this approach to get estimates of potential GDP growth. Most now estimate this growth to be about 2-2.5 percent per year. Of course there are debates about how to apply this principle: Are there diminishing returns to information capital? How much would fundamental tax reform raise the capital-labor ratio? How much does a reduction in marginal tax rates increase labor supply? But these are more quantitative issues, concerning the size of elasticities, rather than matters of principle. A second key macroeconomic principle is that there is no long-term trade-off between the rate of inflation and the rate of unemployment; a corollary is that a shift by the central bank to a higher rate of money growth will simply result in more inflation in the long run, with the unemployment rate remaining unchanged. Although controversial at one time, this does not appear to be controversial anymore; empirical and theoretical research provides strong support. In the 1960's inflation * Department of Economics, Stanford University, Stanford, CA 94305.

Does the Yield Spread Predict Real Economic Activity? A Multicountry Analysis

Abstract: Forecasts of real economic activity are a critical component of many decisions. Businesses rely on such forecasts in forming their production plans. Policymakers rely on such forecasts when choosing the path of monetary policy or when forming the national budget. The appropriateness of these choices depends, in large part, on the quality of the forecast. Despite their importance, forecasts of real economic activity can be unreliable. Forecasts based on macroeconomic models are often hindered by the lack of timely and accurate data and the complexity of the forecasting model. These difficulties have led to a growing interest in using financial variables to supplement traditional model-based forecasts of real economic activity. The advantages of forecasts based on financial variables are that such forecasts are simple to implement, and the data are readily available and less prone to measurement error. One financial variable that has been particularly successful in forecasting U.S. real economic growth is the difference between long-term and short-term interest rates, or the yield spread. In general, a positive yield spread-that is, higher long-term interest rates than short rates-is associated with future economic expansion, while a negative yield spread is associated with future economic contraction. In addition, the magnitude of the spread is related to the level of real economic growth: the larger the spread, the faster the rate of real economic growth in the future. While evidence on the usefulness of the yield spread as a predictor of real economic activity for the United States is now well-established, evidence outside the United States is limited. Few studies have examined the forecast power of the yield spread in other countries, and those that have are limited in either the sample of countries, the measure of real economic activity, or the length of the forecast horizon. Such evidence on the predictive ability of the yield spread, however, would be useful to businesses and policymakers in the United States as well as abroad. For example, U.S. businesses and policymakers would benefit from better forecasts of foreign real economic activity because projections for U.S. exports depend on forecasts of foreign economic growth. In addition, foreign businesses and policymakers would benefit from knowing which variables are useful in forecasting real economic activity in their country. To obtain such evidence, this article evaluates the ability of the yield spread to forecast real economic activity in 11 industrial countries. The first section of this article defines the yield spread and explains why the spread may be a useful predictor of real economic activity. The second section describes the data and criteria used to evaluate the predictive power of the yield spread. The third section examines whether yield spreads have reliably forecast real economic activity in the Il countries, using several measures of real economic activity and alternative forecast horizons. The empirical results indicate the yield spread is a statistically and economically significant predictor of real economic activity in several industrial countries besides the United States. In addition, the yield spread forecasting model generally outperforms two alternative forecasting models in predicting future real GDP growth. I. THE LINK BETWEEN THE YIELD SPREAD AND REAL ECONOMIC ACTIVITY Understanding the relationship between the yield spread and the economy involves understanding the yield curve and what movements in it may reflect.' This section defines the yield curve and the yield spread and discusses explanations for why the yield spread could reliably forecast real economic activity. What is the yield curve? A yield curve plots the yields on debt securities with similar risk, liquidity, and tax considerations relative to the securities' time to maturity. For example, suppose today the yield on a 3-month Treasury bill is 6 percent and the yield on a 10-year Treasury bond is 8 percent. …

Economic Growth in East Asia and Western Europe Since 195 0: Implications for Living Standards

Abstract: Evaluations of economic performance conventionally rely on levels and rates of growth of real GDP per person. This can be mislead ing especially when comparing East Asia with Western Europe. Here it is especially important to allow for differences in hours worked, and when this is done, Asian countries' productivity outcomes look much less impressive than is usually thought. More generally, it is argued that real GDP/person is not a good guide to well-being in high income countries where broader measures of economic welfare are required and index number problems preclude reliable league tables.

National economic trends, market size and city growth effects on European office rents

Abstract: This paper extends existing research on European office markets. Using a time-series cross-sectional methodology it examines the influence on office rents in 22 European cities of national economic conditions, market size and measures of economic growth and change in the city economy over the period 1982-94. The results demonstrate the significance of national real GDP changes and real interest rates in explaining European real office rental movements. In contrast, market size and city growth effects appear to have an insignificant impact on office rents.

The Delta-model revisited: recent trends in the structural performance of the Dutch economy

Abstract: The rapid growth performance of the Dutch economy in terms of growth in real GDP, employment and per capita income can be traced back to the mid-1980s. This paper suggests that the growth acceleration of the Dutch economy has primarily been the result of a below-average performance during earlier times (i.e. the 1970s and early 1980s).

Private Investment and Endogenous Growth: Evidence From Cameroon

Abstract: This paper investigates empirically the factors that have influenced economic growth in Cameroon during 1963-96. The results, which support the endogenous-growth-type model, indicate that (1) the aggregate production function exhibits increasing returns to scale; (2) the impact of increases in private investment on growth is large, significant, and robust; (3) increases in government investment have a positive impact on growth; (4) human capital development plays an important role in output expansion; (5) positive externalities are generated by physical and human capital accumulation; and (6) growth is boosted by economic policies that foster external competitiveness and a prudent fiscal stance.

Output, Growth, Welfare, and Inflation: A Survey

Abstract: In this article, Joseph Haslag surveys both the theoretical results and the empirical evidence relating inflation to per capita real GDP growth. Theory yields mixed results: a permanent change in inflation can raise, lower, or have no impact on per capita output or its rate of growth. The crucial factor seems to be the role money plays in the model economy. However, in most cases, a permanent increase in inflation lowers the average person's welfare. The empirical evidence is similarly inconclusive. A body of evidence suggests that high-inflation countries do grow more slowly than low-inflation countries. However, the systematic relationship between inflation and output growth does not survive when researchers include other potential determinants of growth or adopt an alternative definition of trend.

Energy and gdp

Abstract: Understanding of the role of energy use at the national level requires the understanding of the relationship of energy use to economic activity and social well-being. Gross domestic product (GDP) measures the value of goods and services produced in a country in one year. There is a close relationship between energy supply, energy consumption, and GDP, which indicates the economic development of a country. The living standard of a country is often measured by the per capita GDP. This article presents the evaluations and future projections of energy and energy resources of the Organization for Economic Cooperation and Development (OECD). The total primary energy supply, total final energy consumption, and energy intensities for supply and consumption are analysed. The energy data for all OECD countries are presented and analyses of the differences in energy and GDP ratios are conducted at an aggregate level by examining differences in the factors that affect the energy intensities. To provide accurate projections for the future, new correlations are developed between average GDP, total primary energy supply, total final consumption, total per capita primary energy supply, total per capita final consumption and total OECD population. © 1997 by John Wiley & Sons, Ltd.

Stylized Facts of Government Finance in the G-7

Abstract: The stylized facts of government finance in the Group of Seven (G-7) industrial countries show that revenues lag real GDP procyclically, while government spending in most cases fails to lead the economy procyclically. This finding is not confined to transfers but also applies to the wage component of government consumption as well as, in most cases, to government fixed investment. Government deficits are always countercyclical but there is little evidence that stabilization is equally successful in stimulating the economy before shocks materialize.

The Cyclical Behavior of Interest Rates

Abstract: This article investigates the behavior of the term structure of interest rates over the business cycle. In contrast to prior studies that measure the business cycle by the simple growth in aggregate economic activity, we consider the deviation of aggregate economic activity from its potentially stochastic trend. We show that incorporating both an independent trend and cyclical component in consumption improves the efficiency in estimating consumption-based asset pricing models. We also find that the term spread is more informative about future changes in stochastically detrended real gross domestic product (GDP) than future growth rates in real GDP. THE NOTION OF SYSTEMATIC variation in interest rates over the business cycle is a familiar one. Beginning with the work of Kessel (1965), which describes the behavior of long- and short-term interest rates with respect to aggregate economic activity, numerous authors have investigated the relation of the term structure of interest rates to changes in macroeconomic variables such as gross domestic product (GDP), consumption, and inflation. In particular, Fama (1986), C. Harvey (1988, 1989), and Estrella and Hardouvelis (1991), among others, demonstrate that the current term structure provides valuable ex ante information about expected economic growth. Following Lucas (1978) and Brock (1982), recent general equilibrium term structure models, for example Cox, Ingersoll, and Ross (1985), Breeden (1986), and Sun (1992), have explored the bond pricing implications of stochastic growth models.2 In these term structure models real interest rates depend, through a representative investor's marginal utility, on consumption and its dynamics. Faced with changing consumption opportunities, the representative investor uses available financial assets to smooth lifetime consumption. Given specific assumptions about the utility function and the dynamics of the underlying state variables, explicit bond pricing formulae obtain that link the behavior of long and short term interest rates. C. Harvey (1988) uses this framework to investigate the relation between real interest rates and consumption growth; the latter is taken as a proxy for the business cycle.

Annual Revision of the National Income and Product Accounts

Abstract: THE BUREAU of Economic Analysis (BEA) released revised estimates of the national income and prod­ uct accounts (NIPAs) for 2009–2011 and for the first quarter of 2012 on July 27, 2012.1 As is usual in annual NIPA revisions, these estimates incorporated newly available source data that are more complete, more de­ tailed, and otherwise more reliable than those that were previously incorporated. This annual revision has not greatly changed the gen­ eral picture of the economy for the past several years.2 However, the revised estimates indicate that the decline during the recession was somewhat less steep and that the subsequent period of expansion was slightly less ro­ bust. The revised estimates of the change in real gross domestic product (GDP) show that for the period of contraction from the fourth quarter of 2007 to the sec­ ond quarter of 2009, real GDP decreased at an average annual rate of 3.2 percent; in the previously published estimates, it had decreased 3.5 percent. The cumulative decrease in real GDP was 4.7 percent (not at an annual rate); in the previously published estimates, the cumula­ tive decrease had been 5.1 percent. For the period of ex­ pansion from the second quarter of 2009 to the first quarter of 2012, real GDP increased at an average annual rate of 2.3 percent; in the previously published estimates, it had increased 2.4 percent. The revised annual estimates of real GDP and of the featured price indexes show similar rates of change to the previously published estimates. The overall pattern of the contributions of the major components to real GDP growth was also little changed except for the contribu­ tion of state and local government spending.

Transition to date: a comparative overview

Abstract: Experience with the transition from plan to market has varied greatly across the reforming socialist countries. By the start of 1996 transition countries fell into three broad categories — growing, recovering, and lagging (Table 1). In the first category, China and Vietnam have experienced uninterrupted growth in real GDP since the beginning of their reforms in 1978 and 1986, respectively. Poorer and more rural than the socialist countries of Central and Eastern Europe (CEE) and the Newly Independent States (NIS) of the former Soviet Union, they started reforms under very different structural and macroeconomic conditions (see Sachs and Woo, 1994; McKinnon, 1994). In particular, their state sectors were relatively small, household savings were low, and they were under-financialised. This was in sharp contrast to the high household savings that had produced a large money overhang in most CEE and NIS countries at the start of reform. Also, China’s trading relations were independent of the planned CMEA system, whose collapse disrupted trade in CEE and NIS, while Vietnam was only partially integrated into this system.

Inventories and the Business Cycle: An Overview

Abstract: nvestment in business inventories has aver-aged roughly one-half of 1 percent of real GDPin the United States over the post–World War IIperiod. Given its relatively minor role as a com-ponent of output, it might seem curious that in-ventory investment has traditionally drawn agreat deal of interest from macroeconomistsand policymakers. One reason is that althoughthe level of inventory investment is quite smallrelative to GDP, fluctuations in inventory invest-ment are not so small relative to the fluctuationsin GDP. For example, changes in inventory in-vestment are, on average, more than one-thirdthe size of quarterly changes in real GDP overthe postwar period.

Stylized Facts of Government Finance in the G-7

Abstract: The stylized facts of government finance in the Group of Seven (G-7) industrial countries show that revenues lag real GDP procyclically, while government spending in most cases fails to lead the economy procyclically. This finding is not confined to transfers but also applies to the wage component of government consumption as well as, in most cases, to government fixed investment. Government deficits are always countercyclical but there is little evidence that stabilization is equally successful in stimulating the economy before shocks materialize.

Old and new problems in the estimation of national accounts in transiton economies1

Abstract: The paper discusses the measurement and interpretation of real GDP in transition economies. It argues that the statistical offices in Eastern Europe, the Baltics and the CIS should place emphasis in the years ahead on improving the mechanism by which estimates of output, consumption, investment and foreign trade are balanced to ensure compliance with standard accounting identities. Improvements to this ‘balancing mechanism’may substantially strengthen the reliability of national accounts data and would not necessarily require a major further financial outlay for the statistical offices. In its discussion of the interpretation of real GDP data, the paper demonstrates that the use of the measured change in output at constant prices as a proxy for the evolution of ‘social welfare’may be particularly problematic in the context of transition economies.

A federal funds rate equation

Abstract: I. INTRODUCTION This paper estimates a monetary policy reaction function that explains the behavior of the federal funds rate during the period 1979 to 1992. This funds-rate equation consists of two pans: a long-run part and a short-run part. The long-run part, which assumes that the funds rate moves one-for-one with the inflation rate and that the real funds rate is mean stationary, determines the long-run, equilibrium component of the funds rate. In the short run, however, the funds rate differs from its long-run equilibrium value. The short-run part has the feature that the funds rate rises if real GDP is above potential GDP, if inflation rises, or if the long-term bond rate rises. The funds rate equation is estimated with and without a money variable. Money growth, when included in the equation, is highly significant, indicating that money also influenced policy. The results also indicate, however, that in recent years the Fed has discounted the leading indicator properties of money. The plan of this paper is as follows. Section II discusses the premises that underlie the federal funds-rate equation estimated here. Section III presents empirical results, and section IV contains conclusions and summarizes the findings. II. THE MODEL AND THE METHOD A Discussion of the Determinants of the Federal Funds Rate The federal funds-rate equation studied here has a long-run part and a short-run part. Equation (1) specifies the long-run economic determinants of the funds rate: (1) [Mathematical Expression Omitted] where FR is the funds rate; [rr.sup.*] is the economy's underlying equilibrium real rate; and [p.sup.*] is the long-term expected inflation rate. The equilibrium real rate [rr.sup.*] can be viewed as the rate which equates the flows of desired saving and investment in the economy. Equation (1) says that the nominal federal funds rate depends upon the economy's underlying real rate and expected inflation. This relationship, which holds in the long run, hypothesizes that the Fed lets the funds rate move with the real rate plus the long-term inflation rate expected by the public. Failure to hold this equality in the long run results in monetary accelerations and rising inflation or monetary deceleration and deflation. In the short run, however, the funds rate can differ from the long-run equilibrium value determined in (1) for a number of reasons. Both the real rate and long-term expected inflation are unobservable variables. The Fed has to track them in the short run, which it may do by focusing on the behavior of observables such as actual money, real growth, inflation etc. More importantly, the Fed may have some short-run objectives pertaining to real growth and inflation, resulting in funds-rate policy actions different from those dictated by (1). How will one then specify a short-run federal funds-rate equation? Most studies of the policy reaction function summarized in Khoury [1990] indicate that the Fed "leans against the wind" - tightening or easing money growth in response to increases or decreases in inflation, labor market tightness and income. This aspect of Fed behavior is generally captured by including the unemployment rate and/or increases in income in the reaction function. I hypothesize instead that the Fed reacts to deviations of actual GDP over potential GDP rather than to changes in GDP. This specification reflects the assumption that the Fed's lean-against-the-wind procedures for adjusting the funds-rate target are gradual and display considerable short-run persistence. For example, during cyclical expansions the Fed generally ratchets up its funds-rate target gradually and only after growth in GDP is well established.(1) This means during expansions the funds rate does not always move up as soon as real growth becomes positive, thereby weakening the empirical link between movements in the funds rate and changes in GDP. Furthermore, the Fed may begin to worry about the inflation implications of real growth when real GDP is above potential. …

Technology, trade and growth: some empirical findings

Abstract: International patent data for 39 countries from 1970 to 1985 are used to create proxies for imitation and innovation. Domestic imitation and innovation both appear to depend positively on high technology imports from developed countries, intellectual property rights, and the size of the economy. Additionally, transportation and communication infrastructure and quality adjusted research effort are found to contribute positively to domestic innovation. Finally, growth in real per capita GDP is positively related to physical capital stock growth, foreign and domestic innovation, and negatively related to initial GDP levels, consistent with conditional convergence hypotheses. Interestingly, foreign technology from developed countries appears to play a greater role in per capita GDP growth than domestic innovation.