Working Papers
2017
February 14, 2017
Banks, Firms, and Jobs
Description: We analyze the employment effects of financial shocks using a rich data set of job contracts, matched with the universe of firms and their lending banks in one Italian region. To isolate the effect of the financial shock we construct a firm-specific time-varying measure of credit supply. The contraction in credit supply explains one fourth of the reduction in employment. This result is concentrated in more levered and less productive firms. Also, the relatively less educated and less skilled workers with temporary contracts are the most affected. Our results are consistent with the cleansing role of financial shocks.
February 14, 2017
A Fresh Look at Potential Output in Central, Eastern, and Southeastern European Countries
Description: Was the postcrisis growth slowdown in Central, Eastern and Southeastern Europe (CESEE) structural or cyclical? We use three different methods—production function approach, basic multivariate filter, and multivariate filter with financial frictions—to evaluate potential growth and output gaps for 18 CESEE countries during 2000-15. Our findings suggest that potential growth weakened significantly after the crisis across most countries in the region. This decline appears to be largely due to stagnant productivity and weaker capital accumulation, which were associated with common external factors, including trading partners’ slow potential growth, but also decline in global trade and stalled expansion of global value chains. Our estimates suggest that output gaps in 2015 were largely closed in many countries in the region.
February 14, 2017
What has happened to Sub-Regional Public Sector Efficiency in England since the Crisis?
Description: This paper estimates public sector service efficiency in England at the sub-regional level, studying changes post crisis during the large fiscal consolidation effort. It finds that despite the overall spending cut (and some caveats owing to data availability), efficiency broadly improved across sectors, particularly in education. However, quality adjustments and other factors could have contributed (e.g., sector and technology-induced reforms). It also finds that sub-regions with the weakest initial levels of efficiency converged the most post crisis. These sub-regional changes in public sector efficiency are associated with changes in labor productivity. Finally, the paper finds that regional disparities in the productivity of public services have narrowed, especially in the education and health sectors, with education attainment, population density, private spending on high school education and class size being to be the most important factors explaining sub-regional variation since 2003.
February 14, 2017
The Growth Return of Infrastructure in Latin America
Description: This paper examines the effects of improvements in infrastrucutre on sectoral growth and firm-level investment, focusing on six Latin American countries. Exploiting the heterogeneity in the quality of infrastructure across countries and the intrinsic variation in the dependence of sectors on infrastructure, I find that better infrastructure raises growth and investment. Improved infrastructure could yield large economic benefits. For example, if the quality of infrastructure in Colombia increased to the sample median (Czech Republic), GDP growth would increase by about 0.1 percentage points.
February 14, 2017
Women at Work in Latin America and the Caribbean
Description: Women across the world remain an underutilized resource in the labor force. Participation in the labor force averages around 80 percent for men but only 50 percent for women – nearly half of women’s productive potential remains untapped compared to one-fifth for men. Latin America and the Caribbean (LAC), as a region, saw the largest gains in female labor force participation (LFP) in the world during the last two decades. Women in LAC are becoming increasingly active in paid work, closing the gap with men and catching up to their counterparts in advanced economies at an impressive rate. In this paper, we document the recent trends in female LFP and female education in the LAC region, discuss the size of potential gains to GDP from increasing female LFP and policies which could be deployed towards this goal.
February 13, 2017
Quarterly Projection Model for India: Key Elements and Properties
Description: This paper outlines the key features of the production version of the quarterly projection model (QPM), which is a forward-looking open-economy gap model, calibrated to represent the Indian case, for generating forecasts and risk assessment as well as conducting policy analysis. QPM incorporates several India-specific features like the importance of the agricultural sector and food prices in the inflation process; features of monetary policy transmission and implications of an endogenous credibility process for monetary policy formulation. The paper also describes key properties and historical decompositions of some important macroeconomic variables.
February 13, 2017
Inflation-Forecast Targeting for India: An Outline of the Analytical Framework
Description: India formally adopted flexible inflation targeting (FIT) in June 2016 to place price stability, defined in terms of a target CPI inflation, as the primary objective of monetary policy. In this context, the paper draws on Indian macroeconomic developments since 2000 and the experience of other countries that adopted FIT to bring out insights on how credible policy with an emphasis on a strong nominal anchor can reduce the impact of supply shocks and improve macroeconomic stability. For illustrating the key issues given the unique structural characteristics of India and the policy options under an FIT framework, the paper describes an analytical framework using the core quarterly projection model (QPM). Simulations of the QPM are carried out to illustrate the monetary policy responses under different types of uncertainty and to bring out the importance of gaining credibility for improving monetary policy efficacy.
February 13, 2017
What Influences Bank Lending in Saudi Arabia?
Description: Determinants of bank-level credit growth in Saudi Arabia are investigated by applying a panel approach to data spanning 2000–15. Strong bank balance sheet conditions, economic activity, and oil prices support bank lending. Reduced bank concentration appears to have helped. Lending remained robust in 2015 despite oil prices having declined, helped by strong bank balance sheets and a reduction in bank holdings of “excess liquidity”. To support bank lending in the period ahead, bank balance sheets need to remain strong. Fiscal adjustment and a reduced reliance on banks to finance the budget deficit would support credit provision to the private sector.
February 13, 2017
Assessing the Fragility of Global Trade: The Impact of Localized Supply Shocks Using Network Analysis
Description: Anecdotal evidence suggests the existence of specific choke points in the global trade network revealed especially after natural disasters (e.g. hard drive components and Thailand flooding, Japanese auto components post-Fukushima, etc.). Using a highly disaggregated international trade database we assess the spillover effects of supply shocks from the import of specific goods. Our goal is to identify inherent vulnerabilities arising from the composition of a country’s import basket and to propose effective mitigation policies. First, using network analysis tools we develop a methodology for evaluating and ranking the supply fragility of individual traded goods. Next, we create a country-level measure to determine each country’s supply shock vulnerability based on the composition of their individual import baskets. This measure evaluates the potential negative supply shock spillovers from the import of each good.
February 13, 2017
Terms-of-Trade Cycles and External Adjustment
Description: We study the process of external adjustment to large terms-of-trade level shifts—identified with a Markov-switching approach—for a large set of countries during the period 1960–2015. We find that adjustment to these shocks is relatively fast. Current accounts experience, on average, a contemporaneous variation of only about ½ of the magnitude of the price shock—indicating a significant volume offset—and a full adjustment within 3–4 years. Dynamics are largely symmetric for terms-of-trade booms and busts, as well as for advanced and emerging market economies. External adjustment is driven primarily by offsetting shifts in domestic demand, as opposed to variations in output (also reflected in the response of import rather than export volumes), indicating a strong income channel at play. Exchange rate flexibility appears to have played an important buffering role during booms, but less so during busts; while international reserve holdings have been a key tool for smoothing the adjustment process.