Showing papers on "Real gross domestic product published in 2002"

Global Economic Prospects

Abstract: The global economic recovery is continuing but at a somewhat slower pace than was anticipated six months ago. Specifically, using the country weights from the IMF's World Economic Outlook, the forecast for real GDP growth in the world economy during 2002 (i.e., on a fourthquarter- to-fourth-quarter basis) is cut by about half a percentage point to 3 percent-- a pace that is slightly below my estimate of the potential growth rate for world GDP. This downward revision reflects primarily slower growth than earlier expected during the first half of 2002 in most industrial countries and the expectation that growth will remain somewhat more sluggish than earlier expected at least through year-end. For 2003, the forecast for global economic growth is also cut by about half a percentage point--to 4 percent--reflecting both general factors suggesting slightly weaker performance in many industrial and developing countries and the particular economic risks arising from possible military action against Iraq and from potential credit events affecting key developing countries. Despite these downward revisions, however, there is little doubt that the world economy will see significant improvement this year from the 1 percent growth recorded in 2001, and it is still reasonable to expect further improvement to a growth rate modestly above global potential during 2003.

Has the Business Cycle Changed and Why

Abstract: From 1960 to 1983, the standard deviation of annual growth rates in real GDP in the United States was 2.7%. From 1984 to 2001, the corresponding standard deviation was 1.6%. This paper investigates this large drop in the cyclical volatility of real economic activity. The paper has two objectives. The first is to provide a comprehensive characterization of the decline in volatility using a large number of U.S. economic time series and a variety of methods designed to describe time-varying time-series processes. In so doing, the paper reviews the literature on the moderation and attempts to resolve some of its disagreements and discrepancies. The second objective is to provide new evidence on the quantitative importance of various explanations for this "great moderation." Taken together, we estimate that the moderation in volatility is attributable to a combination of improved policy (20-30%), identifiable good luck in the form of productivity and commodity price shocks (20-30%), and other unknown forms of ...

Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck?

Abstract: The volatility of U.S. real GDP growth since 1984 has been markedlylowerthanoverthepreviousquartercentury.Weutilizefrequency-domain and VAR methods to distinguish among competing explanations for this reduction: improvements in monetary policy, better business practices, and a fortuitous reduction in exogenous disturbances. We find that reduced innovation variances account for much of the decline in aggregate output volatility, suggesting that good luck is the most likely explanation. Good practices and good policy appear to have played a more important role in explaining the post-1984 decline in the volatility of consumer price inflation.

On the Causes of the Increased Stability of the U.S. Economy

Abstract: 1. INTRODUCTION The volatility of real GDP growth in the United States has fallen by half since the early 1980s relative to the prior postwar experience. (1) Inflation also stabilized around then (although only when compared with a shorter period of volatility in the 1970s). Some studies have argued that an improvement in U.S. monetary policy around that time can explain both the lower output and inflation volatility; others have attributed the decreased volatility of GDP to a reduction in the size of the shocks hitting the U.S. economy--essentially "good luck"--and have attributed the improvement on the inflation front to better policy. (2) In this paper, we argue that changes in inventory behavior stemming from improvements in information technology (IT) have played a direct role in reducing real output volatility. Our rationale is that even if the magnitude of the exogenous shocks hitting the economy has not changed, the role of inventory investment in magnifying or propagating those shocks has moderated significantly. Thus, even a large swing in final demand would be expected to produce a smaller swing in production now than it would have twenty or thirty years ago. We argue further that this implies a more modest role for both luck and improved monetary policy in stabilizing output, although policy remains the likely source of reduced inflation volatility. Our view that technical progress is primarily responsible for the reduced volatility of output is formed largely by two important features of the data. First, in a growth-accounting sense, most of the reduction in aggregate variability can be explained by a corresponding reduction in the variability of output in the durable goods sector. The nondurables, services, and structures sectors of the economy do not contribute importantly to the increased aggregate stability, nor are these sectors themselves significantly more stable. (3) Second, the dramatic decline in the volatility of durables production is not accompanied by a similar reduction in the variability of durables final sales. In fact, the ratio of output variability to sales variability in that sector drops sharply after the early 1980s. The view that policy alone brought about the increased stability would have to explain why policy affected the volatility of production so much more than final sales, and why the phenomenon of increased stability has been concentrated in the durable goods sector. In other words, policy (or good luck) would have to explain why the impact was felt primarily in durable goods inventories. After providing a detailed look at the changing volatility of macro data, we present a model in which improved information about final demand leads to less volatile output, both absolutely and relative to final demand. We then show how changes in monetary policy alone are unlikely to have important effects on the volatility of production relative to final sales. Finally, we suggest that monetary policy played the primary role in the reduction of inflation volatility. 2. THE CHANGING MACROECONOMIC ENVIRONMENT In this section, we provide an overview of the changing volatility of the U.S. macroeconomy over the postwar period 1952:3 to 2000:2. We begin by comparing the behavior of inflation and output volatility over three subsamples and conclude that while the stability of output growth over the past fifteen or so years is unprecedented, the current stability of inflation is similar to the stability that prevailed in the 1950s and 1960s. Turning then to disaggregate output data, we point out the importance of the durable goods sector in explaining the decline in aggregate volatility. We then look at the changing relative volatilities of output and final sales throughout the goods sector and highlight the role of inventory behavior in stabilizing output. 2.1 Inflation and Output Chart 1 presents U.S. real GDP growth from 1953:2 to 2000:2; Chart 2 depicts the consumer price index (CPI) over the same period. …

A Re-examination of the Predictability of Economic Activity Using the Yield Spread

Abstract: This paper revisits the yield spread's usefulness for predicting future real GDP growth. We show that the contribution of the spread can be decomposed into the effect of expected future changes in short rates and the effect of the term premium. We find that both factors are relevant for predicting real GDP growth but the respective contributions differ. We investigate whether the cyclical behavior of interest rate volatility could account for either or both effects. We find that while volatility displays important correlations with both the term structure of interest rates and GDP, it does not appear to account for the yield spread's usefulness for predicting GDP growth.

Estimating the effects of fiscal policy in OECD countries

Abstract: This paper studies the effects of fiscal policy on GDP, inflation and interest rates in 5 OECD countries, using a structural Vector Autoregression approach. Its main results can be summarized as follows: 1) The effects of fiscal policy on GDP tend to be small: government spending multipliers larger than 1 can be estimated only in the US in the pre-1980 period. 2) There is no evidence that tax cuts work faster or more effectively than spending increases. 3) The effects of government spending shocks and tax cuts on GDP and its components have become substantially weaker over time; in the post-1980 period these effects are mostly negative, particularly on private investment. 4) Only in the post-1980 period is there evidence of positive effects of government spending on long interest rates. In fact, when the real interest rate is held constant in the impulse responses, much of the decline in the response of GDP in the post-1980 period in the US and UK disappears. 5) Under plausible values of its price elasticity, government spending typically has small effects on inflation. 6) Both the decline in the variance of the fiscal shocks and the change in their transmission mechanism contribute to the decline in the variance of GDP after 1980.

International Validation of the Corruption Perceptions Index: Implications for Business Ethics and Entrepreneurship Education

Abstract: International government and corporate corruption is increasingly under siege. Although various groups of researchers have quantified and documented world-wide corruption, apparently no one has validated the measures. This study finds a very strong significant correlation of three measures of corruption with each other, thereby indicating validity. One measure was of Black Market activity, another was of overabundance of regulation or unnecessary restriction of business activity. The third measure was an index based on interview perceptions of corruption (Corruption Perceptions Index or CPI) in that nation. Validity of the three measures was further established by finding a highly significant correlation with real gross domestic product per capita (RGDP/Cap). The CPI had by far the strongest correlation with RGDP/Cap, explaining over three fourths of the variance.Corruption is increasingly argued to be a barrier to development and economic growth. Business students often do not see ethics courses as being as relevant as other value-free disciplines or core courses. The data in this study suggests otherwise. Sustainable economic development appears very dependent on a constant, virtuous cycle that includes corruption fighting, and the maintenance of trust and innovation, all reinforcing each other.

An analysis on the structural stability of Okun's law--a cross-country study

Abstract: Okun's law postulates an inverse relationship between movements of the unemployment rate and the real gross domestic product (GDP). This article investigates Okun's law for 15 OECD countries and checks for its the structural stability. By using data on employment and the labour force whether structural instability is caused either from the demand side or supply side is inferred.

Wages, Employment and Economic Shocks: Evidence from Indonesia

Abstract: After over a quarter century of sustained economic growth, Indonesia was struck by a large and unanticipated crisis at the end of the 20th Century. Real GDP declined by about 12% in 1998. Using 13 years of annual labor force data in conjunction with two waves of a household panel, the Indonesia Family Life Survey (IFLS), this paper examines the impact of the crisis on labor market outcomes.

The human development index, 1870-1999: some revised estimates

Abstract: This article presents revised estimates for the Human Development Index (HDI) for the benchmark years 1870, 1913, 1950, 1975 and 1999, based on the latest available data for real gross domestic product per person and on the recently modified formula for HDI. The results indicate that HDI in most of today's less-developed countries exceeds that of Western Europe in 1870 and that the gaps in HDI between Western Europe and each of Africa, China and India were smaller in 1999 than in 1950. Both these outcomes have been heavily influenced by widespread gains in life expectancy.

Macroeconomic Adjustment and the Poor : Analytical Issues and Cross-Country Evidence

Abstract: The author studies the links between macroeconomic adjustment and poverty. First, he summarizes some of the recent evidence on poverty in the developing world. Second, he reviews the various channels through which macroeconomic policies affect the poor. Third, the author emphasizes the role of the labor market. He develops an analytical framework that captures some of the main features of the urban labor market in developing countries and studies the effects of fiscal adjustment on wages, employment, and poverty. Fourth, he presents cross-country regressions linking various macroeconomic and structural variables to poverty. The author finds that output growth and real exchange rate depreciations tend to lower poverty, while illiteracy, income inequality, and macroeconomic volatility tend to increase poverty. In addition, the impact of growth on poverty appears to be asymmetric, and to result from a significant relationship between episodes of increasing poverty and negative growth rates.

Short-Run Assessment of French Economic Activity Using Optim

Abstract: This paper describes a short-term projection model for French economic activity, OPTIM, the aim of which is twofold. First it gives an early estimate of real GDP growth for the previous quarter, when no figure has yet been released by Insee, the French National Statistical Institute, along with flash estimates for main GDP components (consumption, investment, inventories and external trade) together with a breakdown by sectors (services, manufacturing, construction, equipment, agri-food). This appears particularly useful for the short-run analysis. In this respect OPTIM may be considered as a traditional bridge equation model since it links a particular indicator available generally ahead of the release of the quarterly national accounts with a quarterly aggregate like GDP, consumption… Second, this tool supplies also estimates for GDP growth and its main components for the current quarter and for the next quarter (i.e two and three quarters respectively following the latest reference period of Insee's GDP data release). A pool of (mainly) monthly variables is used, which are, sometimes, directly introduced in the specification but, more often, summarised by the implementation of a principal component analysis (PCA). The largest part of the set of indicators comprises survey data together with monthly traditional indicators (industrial production, consumption in manufactured goods…). But other data (in particular financial data) are also introduced. The outcomes of OPTIM rely on a relatively complex procedure involving about twenty equations and mixing two alternative approaches: a supply approach consisting in a direct modelling of GDP and a demand approach where GDP is the sum of consumption, investment, changes in stocks and net trade (exports minus imports). The discrepancy between these two estimates is distributed according to an original method, yielding a unique GDP estimation. The paper is organised as follows. Section 1 presents the main features of OPTIM. Section 2 deals with data description while section 3 addresses the data assessment's issue. In section 4, the main equations are described. Section 5 presents a general assessment of OPTIM in terms of forecasting record. Finally section 6 concludes and proposes some avenues for further developments.

Measuring the new economy: An international comparative perspective

Abstract: The advances made in the production and use of information and communication technology (ICT) during the past decades may have potentially large effects for long term economic growth. Indeed the substantial acceleration in real GDP growth in many OECD countries, but in particular in the United States, during the second half of the 1990s has led to suggestions that a “new economy” has emerged. In this new economy the old economic rules were supposed to have become invalid. For example, traditional concerns about the limits of maximum production capacity might disappear as the marginal costs of producing ICT goods and services are virtually nil. Moreover, the trade-off between inflation and unemployment could be reduced due to a more efficient inventory management.

Coping with Chile´s External Vulnerability: a Financial Problem

Abstract: With traditional domestic imbalances long under control, the Chilean business cycle is driven by external shocks. Most importantly, Chile’s external vulnerability is primarily a financial problem. A decline in the Chilean termsof- trade, for example, is associated to a decline in real GDP that is many times larger than one would predict in the presence of perfect financial markets. The financial nature of this excess-sensitivity has two central dimensions: a sharp contraction in Chile’s access to international financial markets when it needs it the most; and an inefficient reallocation of this scarce access across domestic borrowers during external crises. In this paper I characterize this financial mechanism and argue that Chile’s aggregate volatility can be reduced significantly by fostering the private sector’s development of financial instruments that are contingent on Chile’s main external shocks. As a first step, the Central Bank or IFIs could issue a benchmark instrument contingent on these shocks. I also advocate a countercyclical monetary policy but mainly for incentive —that is, as a substitute for taxes on capital inflows and equivalent measures— rather than for ex-post liquidity purposes.

Are Real GDP Levels Nonstationary? Evidence from Panel Data Tests

Abstract: potential nonstationarity of important macroeconomic variables, and unit root tests are now a standard procedure in empirical analyses. While there are many findings of unit roots in macroeconomic variables using the popular augmented Dickey and Fuller (1979) test, this test has low power against near-unit-root alternatives. Recently, panel data procedures have been proposed as an avenue to increased power. This paper applies panel unit root tests to international real GDP and real GDP per capita data. The results overwhelmingly indicate that international real GDP and real GDP per capita levels are nonstationary.

Fiscal Policy Effectiveness in Japan

Abstract: The effectiveness of fiscal policy in Japan over the past decade has been a matter of great controversy. We investigate the effectiveness of Japanese fiscal policy over the 1976–1999 period using a structural VAR analysis of real GDP, tax revenues, and public expenditures. We find that expansionary fiscal policy, whether in the form of tax cuts or of public works spending, had significant stimulative effects. Using a new method of computing policy multipliers from structural VARs, we calculate that the multiplier on tax cuts is about 25% higher at a four-year horizon than that on public works spending, though both are well in excess of one. A historical decomposition reveals that Japanese fiscal policy was contractionary over much of the 1990s, and a significant proportion of the variation in growth can be attributed to fiscal policy shocks; accordingly, most of the run-up in public debt is attributable to declining tax revenues due to the recession. Examining savings behavior directly, we find limited evidence of Ricardian effects, insufficient to offset the short-term effects of discretionary fiscal policy. J. Japan. Int. Econ., December 2002, 16(4), pp. 536–558. Federal Reserve Bank of New York, New York, and Institute for International Economics, Washington, DC. © 2002 Elsevier Science (USA). Journal of Economic Literature Classification Numbers: E62, E65, E21.

The Effect of Recessions on the Relationship Between Output Variability and Growth

Abstract: This paper investigates the relationship between output volatility and growth using post-war real GDP data for the United States. We expand on recent research by Beaudry and Koop (1993) documenting the asymmetric effect of recessions on output growth. The results presented in this paper suggest that output volatility is highest when the economy is contracting. While we find that the economy expands most rapidly following a recession, this expansion is offset by the negative impact of output uncertainty.

Structural Vulnerabilities and Currency Crises

Abstract: This paper examines the role of structural factors - governance and rule of law, corporate sector governance (creditor rights and shareholder rights), corporate financing structure - as well as macroeconomic variables in currency crises. Using a technique known as a binary recursive tree allows for interactions between the various explanatory variables. It is found that structural vulnerabilities play an important role in the occurrence of deep currency crises (those with a real GDP growth decline of at least 3 percentage points) and that there are complex interactions between these structural vulnerabilities and macroeconomic imbalances.

Investment in construction and economic growth in developing countries

Abstract: The development of a model of interdependence between investment in construction and gross domestic product (GDP) per capita, based on a long-term trend, for the developing countries of Sub-Saharan Africa (SSA) is presented. The study follows previous research undertaken by others who have investigated the relationship between investment in construction and economic development and found a positive correlation between the share of construction in GDP and the level of national income. The hypothesis tested is: there is a minimum level of investment in construction in developing countries (measured in terms of construction value added [CVA] as a percentage of GDP) to achieve sustainable growth in the economy. The study is based on data acquired on 15 of the countries in SSA over 22 years and the sample is split into two groups: one in which GDP per capita is rising, the other in which GDP per capita is falling. This research puts forward evidence that there is a critical level of CVA/GDP (at 4–5%) below whi...

Urban Economic Growth in China: Theory and Evidence:

Abstract: This paper analyses the relationship between per capita GDP growth and investment, foreign direct investment, labour force growth, government expenditure and urban infrastructure based on the data ...

Can Confidence Indicators Be Useful to Predict Short Term Real GDP Growth

Abstract: We investigate the usefulness of the European Commission confidence indicators in forecasting real GDP growth rates in the short-run in selected euro areas countries (Belgium, Spain, Germany, France, Italy and the Netherlands) which account for almost 90% of the euro area. We estimate a linear relationship between real GDP and confidence indicators and we compare the forecasting performance of the estimated models with a benchmark ARIMA model. We generally find that confidence indicators can be useful in forecasting real GDP growth rates in the short run in a number of countries (Belgium, Germany, France, Italy and the Netherlands). Notwithstanding some signs of instability in the relation between confidence indicators and real GDP, improvements with the use of time-varying parameter models appear to be fairly limited but confirm the findings obtained with constant parameter techniques. The results obtained are robust to a wide range of variant tests implemented.

US Military Expenditures and Economic Growth: Some Evidence from Spectral Methods

Abstract: There is not much consensus on what the relationship is between military expenditures and economic growth. One argument is that military expenditures have a positive impact on growth because they are used as a fiscal policy too. The other hypothesis is that military expenditures have a negative impact on growth. Neither argument is consistent with the results reported here. This paper conducts a spectral analysis on the growth rates of real military and non-military US government expenditures and GDP from 1951-1997. The results suggest that, while non-military spending does move counter-cyclically with real GDP growth rates, military spending does not.

Terms of Trade and Exchange Rate Regimes in Developing Countries

Abstract: Since Friedman (1953), an advantage often attributed to flexible exchange rate regimes over fixed regimes is their ability to insulate more effectively the economy against real shocks. I use a post-Bretton Woods sample (1973-96) of seventy-five developing countries to assess whether the responses of real GDP, real exchange rates, and prices to terms-of-trade shocks differ systematically across exchange rate regimes. I find that responses are significantly different across regimes in a way that supports Friedman's hypothesis. In response to a negative terms-of-trade shock, countries with fixed regimes experience large and significant declines in real GDP, and the real exchange rate depreciates slowly and by means of a fall in prices. Countries with more flexible regimes, by contrast, tend to have small real GDP losses and immediate large real depreciations. The contributions of terms-of-trade disturbances to the actual fluctuation of real GDP, real exchange rates, and prices are also examined.

The Relationship between Economic Development and Social Welfare: A New Adjusted GDP Measure of Welfare

Abstract: Existing literature focuses on the issue of preparation of social welfare measurements on the basis of an unadjusted Gross Domestic Product (GDP). This paper extends this method to incorporate cost-benefit analysis of economic growth in a growing economy in calculating the adjusted GDP, termed as the cost-benefit (CB)-adjusted GDP. This approach is empirically applied to Thailand. There are stark differences between GDP per capita and CB adjusted GDP per capita rates for this period. This paper concludes that GDP can be used as an indicator of social welfare if the GDP estimates are undertaken within a cost-benefit analysis framework.

Trade and GDP Growth: Causal Relations in the United States and Canada

Abstract: Causal relations between the growth rates of exports, imports, and the GDP of Canada and the United States are studied using the vector error correction (VEC) model. Utilizing time-series annual data (1948-1996), Granger causality tests are performed within the framework of the VEC model. Bidirectional causality is supported for Canada from the foreign sector to GDP and vice versa. A weaker relationship between the foreign sector and GDP is statistically supported for the United States. These results are also supported by comparing the total trade (exports plus imports) shares to GDP of the two neighboring economies. The Granger causality tests suggest that Canada is a more open economy than the United States and more trade dependent. Economic policies leading to economic growth and development have been studied by many economists for a long time. The literature in this area is rich; a number of candidate variables that may be related to economic growth have been considered and carefully examined. Some of these variables are investment, saving, inflation, inflation variability, governmental expenditures as a percentage of GDP, government deficit, and other mainly macroeconomic variables. Many economic models were constructed for the purpose of understanding economic growth and to shed light on this issue.' A group of economists has focused exclusively on the foreign sector, particularly on the relationship of exports, imports, and GDP growth. Emphasis on international trade dates back to the mercantilists more than two centuries ago. Mercantilists were firm believers that trade surpluses were the only favorable outcome for the domestic economy from international trade relations. Mercantilists supported export promotion and pro

How Well Does the Beige Book Reflect Economic Activity? Evaluating Qualitative Information Quantitatively

Abstract: Eight times a year, approximately two weeks before every FOMC meeting, the Federal Reserve releases a description of economic conditions in the twelve Federal Reserve districts. Called the Beige Book, this description relies primarily on surveys and anecdotal evidence gathered by the twelve district banks. For this paper, we read and numerically scored past Beige Books in order to determine the extent to which the descriptions in these books accurately reflect current economic activity as measured by quarterly real GDP growth. We find that both in-sample and out-of-sample, the quantitative Beige Book indices do have significant predictive content for current and next quarter real GDP growth. Furthermore, the Beige Book has information about current quarter real GDP growth not present in other indicators such as the Blue Chip Consensus Forecast or time series models that use real-time data.

A note on cross-country divergence in standard of living

Abstract: Convergence in ‘standards of living’ across countries is an important phenomenon that drew attraction of the researchers in economics during the last two decades. These studies take into account the growth of per capita gross domestic product or labour productivity as a measure of standard of living. The present study attempts to measure the standard of living in terms of the human development index which reflect the human well-being better than income or productivity and examines whether standards of living converge across economies over a fairly long period of time, such as 35 years (1960–1995). The convergence test has been attempted for the full sample as well as for three levels of human development. The study uses the convergence test introduced by Baumol. The tests indicate that in almost for all the cases divergence has been observed. Divergence is also observed for per capita real gross domestic product for all types of sample.