Another legacy of the COVID-19 pandemic: Income divergence

The uneven economic recovery from the pandemic-induced global recession of 2020 is expected to disrupt a multi-decade trend of per capita income convergence between advanced and emerging market and developing economies (EMDEs). This stands in contrast to the global recession following the global financial crisis. Should downside risks to the global recovery, in particular financial market stress, materialize, they are likely to set back growth in EMDEs more than in advanced economies in part because of the more limited policy space remaining in EMDEs, and would further widen per capita income divergence.     

State Policy Choices and Responsiveness of the Temporary Assistance for Needy Families Program During the Great Recession

ABSTRACT

The Great Recession that officially began in December 2007 and ended in June 2009 was the most severe recession since the Depression of the 1930s. To accurately explain the number of families and children receiving cash assistance from Temporary Assistance to Needy Families (TANF) during the 2007 recession, it is important to capture state-level variations in recessionary periods, economies, and TANF policies. This study breaks ground by using multiple regression to explain the number of families enrolled in the TANF program when the TANF caseload peaked in each of the 51 jurisdictions’ recessions as a function of their severe TANF policies while controlling for benefit levels, unemployment rates, and size of populations. Key findings strongly suggest that all else constant, TANF did not grow as much as it would have in the 2007 recession partially due to shorter lifetime limits (less than 60 months) or temporary time limits, multiple severe policies, or benefit cuts witnessed in some states. This study is important to policy makers and academics concerned with the effect of severe policies on the enrollment of needy families with children in the TANF program. The federal government should encourage states to relax some of their requirements during recessions. Future research should examine the consequences of severe TANF policies on the well-being of families with children during recessions.     

The cyclically-adjusted primary balance: A novel approach for the euro area

This paper presents novel estimates for the cyclically-adjusted primary balance for 18 countries of the Euro area over years 1999–2017. We improve the methodology adopted by the European Commission by using quarterly rather than annual frequency data and providing accurate identification of the budgetary items whose response can be considered automatic to the economic cycle. This disaggregated outcome combined with high frequency data marks a significant improvement with respect to previous studies. The empirical analysis is implemented on two sub-periods to examine the impact of governments’ discretionary fiscal policy before and after the Great Recession. The most striking policy implication is that even though the budgetary policy of most European countries can be qualified in principle as anticyclical, this outcome has been weakened by the impact of discretionary policies of many governments especially after the crisis. The results are robust to the use of different de-trending methods.     

Channels of monetary policy transmission in Vietnam

Since the economic reforms launched in 1986, the Vietnamese economy has registered impressive economic growth. While foreign investment is providing much needed capital, through the conduct of monetary policy, the State Bank of Vietnam (SBV), which is an integral part of the government of Vietnam, is also playing an important role in nurturing the economic growth. The aim of this paper is to evaluate the success of the SBV policies. Monetary policy actions affect all sectors of real economies with a significant lag. Without a good understanding of the transmission mechanism, monetary policy actions may not achieve the desired outcomes. Using quarterly data from 1995 to 2010, this paper focuses on monetary policy transmission mechanisms in Vietnam. Specifically, we consider the dynamic response of the Vietnamese economy to interest rate, exchange rate and foreign shocks. The estimated results based on structural vector autoregressive (SVAR) methodology suggest that monetary shocks tend to have a strong influence on Vietnam’s output. We find that Vietnam’s monetary policy is relatively more susceptible to foreign shocks.     

Public sector efficiency in the design of a euro-area social benefit scheme

This study examines the importance of public sector efficiency in the design of a euro area-wide social benefit scheme. Our results reveal large-scale inefficiencies in the use of funds allocated to the scheme during the great recession and euro area sovereign debt crisis that followed, with member states wasting on average 34.6% of funds allocated to it. We therefore propose that to ensure the smooth functioning of the scheme, the fiscal union will first of all have to strengthen it at the national level by improving efficiency in the use of funds by governments. We show that this can be achieved by providing a framework for the transfer of the “critical success factors” in the policies implemented by the most efficient administrations. Furthermore, we show how public sector efficiency considerations can help ameliorate the problem of moral hazard associated with a centralized insurance scheme.     

Rapid growth or stagnation: An economic policy choice

Why has the American economy performed so poorly in the past decade, especially in comparison with the two prior decades? This paper makes the theoretical and empirical case that a series of economic policy decisions provides the most satisfactory explanation and that policy reform will restore good economic performance. The paper also considers alternative explanations including the idea of a new secular stagnation unrelated to policy and the view that the deep financial crisis inevitably delayed recovery from the recession.     

Global loss of production capacity caused by the COVID-19 pandemic

The global economy faces a loss of production capacity among the most severe in at least the past half-century as a result of the recession caused by the COVID-19 pandemic. It will take several years of persistent investment efforts to restore the pre-pandemic level of capacity and put global output back to potential. By using a production function based on the incremental capital-output ratio, we estimate the loss of production capacity for the global economy and for the two main world locomotives, the U.S. and China. To do this, we estimate the production capacity implied in our current recession baseline and the capacity that would have existed in the absence of the pandemic (precrisis scenario). The difference between the two estimates is defined as the loss of capacity generated by the pandemic. The results also allow us to extract some policy implications in terms of mitigation measures and investment requirements.     

Fiscal policy analysis in the euro area: Expanding the toolkit

The absence of historical quarterly fiscal data has limited the analysis of the macroeconomic impact of fiscal policies in the euro area, including the interactions of fiscal and monetary policies. To overcome this gap, we construct a quite disaggregated euro area quarterly fiscal database for the period 1980Q1–2012Q4, based on a rich set of input fiscal data taken from national sources. We discuss how this dataset has allowed and can allow the profession to tackle new policy-relevant research topics. We also provide stylized facts on the cyclical properties of main euro area fiscal aggregates, focusing on the recent economic crisis period.     

Growth and trade in the United States and the world economy: Overview

After the slow recovery from the 2008–2009 global financial crisis, the world economy faced slower growth than in the previous decade and even the prospect of a new global financial crisis. This paper starts by examining the reasons for the slow economic recovery and growth in the after the 2008–2009 global financial crisis and "great recession". Then, it examines the reasons the United States grew faster than other advanced countries (especially Europe and Japan), the slowing growth of emerging market economies (and even economic crisis in some of them), and whether the world is now (February 2020) sliding toward a new global financial crisis and recession.     

Must high commodity prices depress the world economy? An application of a world model system

The impact of higher primary commodity prices on the world economy is central to the North-South dialogue. The less developed countries are seeking a way to obtain a larger share of world income. In the context of current discussions of commodity price stabilization, UNCTAD's “integrated programme” for example, this is likely to mean higher commodity prices. A critical question is then, “Must higher prices for primary commodities depress the industrial economies?”The cyclical swing of 1973–1975 would seem to support the thesis that high primary commodity prices lead to recession in the industrial countries. Yet this experience is not conclusive evidence. Many complex forces, some natural and others policy induced, accounted for the recession. The impact of primary commodity prices must be considered in a full system, recognizing not only the direct costs, but also the resulting demand feedback. Under different circumstances, higher payments to the commodity producing LDCs may well increase demand for manufactures and stimulate exports and industrial activity in the developed countries.This paper uses a version of the LINK world model system to examine the linkages between commodity prices and world economic activity. In the first part we examine the demand feedback in a simple theoretical model of the interrelationships between commodity consumer countries and the commodity producers. In the second part we use an empirical system, COMLINK, the version of the LINK system that incorporates commodity models and commodity price linkages, to simulate various types of commodity price impacts.     

The dynamics of job creation and job destruction in Australia

This paper develops measures of job creation and job destruction (JC&D) based on the methodology initially developed by Davis and Haltiwanger (1990) and using industry employment data from the ABS Survey of Employment and Earnings (SEE), which is available on a quarterly basis between August 1983 and December 2001. It specifically examines the interaction of part‐time and full‐time employment with JC&D processes over the business cycle. Econometric analysis has been conducted to determine the time series properties of cyclical sensitivity and asymmetry. These findings are considered in the context of the likely consequences of the Howard government's Work Choices legislation.     

Housing and the business cycle in South Africa

This paper examines the housing-output growth nexus in South Africa by accounting for the time variation in the causal link with a bootstrapped rolling Granger non-causality test. We use quarterly data on real gross domestic product, real house prices, real gross fixed capital formation and number of building plans passed. Our data span 1971Q2–2012Q2. Using full sample bootstrap Granger causality tests, we find a uni-directional causality from output to number of building plans passed; a uni-directional causality from real house price to output and a bi-directional causal link between residential investment and output. However, using parameter stability tests, we show that estimated VARs are unstable, thus full-sample Granger causality inference may be invalid. Hence, we use a bootstrap rolling window estimation to evaluate Granger causality between the housing variables and the growth rate. In general, we find that the causality from housing to output and, vice versa, differ across different sample periods due to structural changes. Specifically speaking, house price is found to have the strongest causal relationship with output compared to residential investment and number of building plans passed, with real house price showing predictive ability in all but one downward phase of the business cycle during this period.     

State-by-state variations in high-tech employment through the great recession

This paper explores the relationship between state-level high-tech employment and state economic development, labor, and tax policies over the 2007–2012 period. During this period national high-tech manufacturing employment decreased, national high-tech service employment increased and the nation experienced a severe recession. Overall high-tech employment grew very little during this time period but changes in high-tech employment varied substantially from state-to-state. This paper asks why. A two-stage empirical model is developed and estimated. Among other things the results indicate that these policies did influence employment in the period although perhaps in unexpected ways.     

Effective services for improving education and employment outcomes for children and alumni of foster care service: correlates and educational and employment outcomes

Outcomes for youth from foster care have been found to be poor. The education and employment outcomes of youth and alumni of foster care served by transition programmes located in five major US cities were examined. Data were collected by case managers and reported to evaluators quarterly on 1058 youth from foster care for over 2 years. Job preparation, transportation, child care, education support services and life skills were the most common services provided to youth. During the 2‐year study period, 35% of participants obtained employment, 23% obtained a General Education Development or diploma, and 17% enrolled in post‐secondary education. It was found that the longer the youth were enrolled, the more education and employment outcomes they achieved. Further, job preparation and income support services were associated significantly with achieving any positive education or employment outcome. Results indicated that certain services provided over an extended period of time can improve outcomes for youth placed in foster care. For youth to achieve positive outcomes as they transition to adulthood, additional services are necessary. Other implications are discussed.     

Can alternative Taylor-rule specifications describe Federal Reserve policy decisions?

We look at how well several alternative Taylor-rule specifications describe Federal Reserve policy decisions in real time, using the newly developed Giacomini and Rossi (2007) test for non-nested model selection in the presence of (possible) parameter instability. Further, we isolate those Taylor-rule features that are most important for achieving relatively strong real-time performance. Key features of our preferred rule, which is robust to changing economic conditions, are the partial adjustment of the federal funds rate toward an equilibrium rate that depends on the unemployment rate and forward-looking inflation measures. We conclude by presenting an empirical application to show the policy relevance of our preferred rule in the context of the 2008–2009 recession.     

Changes of Electoral Politics under the Growing Wealth Gap in East Asia since the Global Financial Crisis: South Korea and China’s Taiwan in Comparison

Abstract

The economic recession caused by the global financial crisis of 2008 affected political change across the world in different ways. Economic and social problems turned into political crises in North Africa. In Europe and America, dissatisfaction over such problems caused social unrest but did not imperil the political order. In East Asia, where competitive party politics have just emerged, the financial crisis sparked a correlative political and economic reaction model involving economic recession—growing wealth gap—public policy transition in electoral politics. Major electoral campaigns over the past five years in China’s Taiwan, the Republic of Korea and other economies in East Asia indicate that prioritizing economic growth and equitable distribution are emerging to be common core issues in different parties’ electoral competition despite remnant historical questions and highly politicized issues. The new electoral politics based on public policy competition has gained greater space for development against the background of an economic recession and a growing wealth gap, and is exerting a profound influence on the political and economic development process in East Asia.     

南宁市加快承接东部产业转移的对策研究

产业转移是经济发展的必然趋势。东部产业转移为南宁市加快发展提供了巨大的机遇。南宁市要紧抓这一重要机遇,充分发挥自身具有的优势,努力解决存在的问题,主动承接东部产业转移,有力推动南宁市经济跨越式发展。     

Public investment in care services in Turkey: Promoting employment & gender inclusive growth

Recent policy debates on macroeconomic tools to counteract the prolonged global economic recession point to the potential of fiscal policies with appropriate sectoral targets for simultaneously boosting effective demand while alleviating inequalities through employment generation. This paper contributes to the debate by pointing to the social care services sector –in particular early childhood education and care (ECEC) — as an effective target of fiscal spending for robust employment generation and gender inclusive growth. We use a macro-micro simulation model to examine the aggregate and gender employment impact of increasing public expenditures on ECEC services, an underdeveloped sector in Turkey versus physical infrastructure and construction, a common target of stimulatory spending. Our methodological approach combines input-output analysis on aggregate employment effects with a statistical microsimulation approach to assess distributional outcomes. We find that an expansion of ECEC services creates not only significantly more jobs but also does so in a more gender-equitable and fiscally sustainable way than the a construction boom.     

Does insurance fraud in automobile theft insurance fluctuate with the business cycle?

Financial institutions face various cyclical risks, but very few studies have analyzed the cyclicality of operational risk. External fraud is an important operational risk faced by insurers. In this research, we analyze the empirical relationship between insurance fraud and the business cycle and we concentrate our study on two insurance contracts that may create an incentive to defraud. We find that residual insurance fraud exists both in the contract with replacement cost endorsement and the contract with no-deductible endorsement in the Taiwan automobile theft insurance market. These results are consistent with previous literature on the relationship between fraud activity and non-optimal insurance contracting. We also show that the severity of insurance fraud is countercyclical. Fraud is stimulated during periods of recession and mitigated during periods of expansion. Although this last result seems intuitive, our contribution is the first to measure its significance.     

Communication compatible voting rules

We reassess the possibility of full information pooling in a Condorcet jury environment featuring heterogeneous and privately known preference types. We find that in general, with uncorrelated preference types, only very limited heterogeneity is compatible with full pooling. We provide a sufficient condition, based on a simple measure of preference misalignment, under which the set of voting rules compatible with full pooling is at most a singleton. As a caveat to any simplistic conclusions, we identify a case in which an increase in heterogeneity (i.e. polarization) systematically generates the possibility of full pooling. Increased jury size, in contrast, is shown to always render full pooling more difficult.