Working Papers
2011
February 1, 2011
New Indicators for Tracking Growth in Real Time
Description: We develop monthly indicators for tracking growth in 32 advanced and emerging-market economies. We test the historical performance of our indicators and find that they do a good job at describing the business cycle. In a recursive out-of-sample forecasting exercise, we find that the indicators generally produce good GDP growth forecasts relative to a range of time series models.
February 1, 2011
Fiscal Policy During Absorption Cycles
Description: Domestic absorption cycles are relevant in assessment and design of fiscal policies. Our cross-country analysis covers 59 advanced and emerging countries for the 1990-2009 period. We show that ignoring domestic absorption cycles leads to biased fiscal stance indicators, for both advanced and emerging economies, by up to 1.5 percent of GDP. The estimates of fiscal policy reaction functions indicate that absorption booms are associated with pro-cyclical fiscal policy. We tackle the endogeneity problem in reactions functions through stripping the cyclical component of the fiscal aggregates. We also find that simple filtering methods in the computation of absorption gaps perform as better as indirect methods of estimating trade balance gaps and stripping of output gaps.
February 1, 2011
Measuring Energy Security: Trends in the Diversification of Oil and Natural Gas Supplies
Description: We present evidence on one facet of energy security in OECD economies - the extent of diversification in sources of oil and natural gas supplies. Viewed from the perspective of the energy-importing countries as a whole, there has not been much change in diversification in oil supplies over the last decade, but diversification in sources of natural gas supplies has increased steadily. We document the cross-country heterogeneity in the extent of diversification. We also show how the extent of diversification changes if account is taken of the political risk attached to suppliers; the size of the importing country; and transportation risk.
February 1, 2011
The Demographic Dividend: Evidence from the Indian States
Description: Large cohorts of young adults are poised to add to the working-age population of developing economies. Despite much interest in the consequent growth dividend, the size and circumstances of the potential gains remain under-explored. This study makes progress by focusing on India, which will be the largest individual contributor to the global demographic transition ahead. It exploits the variation in the age structure of the population across Indian states to identify the demographic dividend. The main finding is that there is a large and significant growth impact of both the level and growth rate of the working age ratio. This result is robust to a variety of empirical strategies, including a correction for inter-state migration. The results imply that a substantial fraction of the growth acceleration that India has experienced since the 1980s - sometimes ascribed exclusively to economic reforms - is attributable to changes in the country’s age structure. Moreover, the demographic dividend could add about 2 percentage points per annum to India’s per capita GDP growth over the next two decades. With the future expansion of the working age ratio concentrated in some of India’s poorest states, income convergence may well speed up, a theme likely to recur on the global stage.
February 1, 2011
Investing in Public Investment: An Index of Public Investment Efficiency
Description: This paper introduces a new index that captures the institutional environment underpinning public investment management across four different stages: project appraisal, selection, implementation, and evaluation. Covering 71 countries, including 40 low-income countries, the index allows for benchmarking across regions and country groups and for nuanced policy-relevant analysis and identification of specific areas where reform efforts could be prioritized. Potential research venues are outlined.
February 1, 2011
The Great Rebalancing Act: Can Investment Be a Lever in Asia?
Description: Ensuring stable growth in the postcrisis world economy will require a rebalancing of economic activity in several countries. In Asia’s export-dependent economies, this entails relying more on private domestic demand as a driver of growth. While some countries need to raise consumption, several need to raise investment or reorient it from tradable to nontradable sectors. These changes in investment could be facilitated by financial reforms that enhance domestically oriented firms’ access to credit, stronger incentives for corporate restructuring, policies to bolster the business climate and reduce uncertainty, and by improvements in infrastructure that raise the returns to private investment.
February 1, 2011
Recession and Policy Transmission to Latin American Tourism: Does Expanded Travel to Cuba Offset Crisis Spillovers?
Description: This study measures the impact of changing economic conditions in OECD countries on tourist arrivals to countries/destinations in Latin America and the Caribbean. A model of utility maximization across labor, consumption of goods and services at home, and consumption of tourism services across monopolistically competitive destinations abroad is presented. The model yields estimable equations arrivals as a function of OECD economic conditions and the elasticity of substitution across tourist destinations. Estimates suggest median tourism arrivals decline by at least three to five percent in response to a one percent increase in OECD unemployment, even after controlling for declines in OECD consumption and output gaps. Arrivals to individual destination are driven by differing exposure to OECD country groups sharing similar business cycle characteristics. Estimates of the elasticity of substitution suggest that tourism demand is highly price sensitive, and that a variety of costs to delivering tourism services drive market share losses in uncompetitive destinations. One recent cost change, the 2009 easing of restrictions on U.S. travel to Cuba, supported a small (countercyclical) boost to Cuba’s arrivals of U.S. non-family travel, as well as a pre-existing surge in family travel (of Cuban origin). Despite the US becoming Cuba’s second highest arrival source, Cuban policymakers have significant scope for lowering the relatively high costs of family travel from the United States.
February 1, 2011
The Electricity Sector in FYR Macedonia
Description: This paper describes the current state of the Macedonian electricity sector. It looks at ongoing structural changes, driven by the gradual adoption of the EU acquis on energy, and comes up with estimates for electricity subsidies. It concludes by discussing the longer term outlook and sketching policy options.
February 1, 2011
Stress Tests for Defined Benefit Pension Plans – A Primer
Description: Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests and illustrate their strengths and weaknesses. Using an Excel-based template with institution-specific data, readers are walked through the basics of liability valuation and stress testing of assets and liabilities of a typical defined benefit plan.
February 1, 2011
Globalization, the Business Cycle, and Macroeconomic Monitoring
Description: We propose and implement a framework for characterizing and monitoring the global business cycle. Our framework utilizes high-frequency data, allows us to account for a potentially large amount of missing observations, and is designed to facilitate the updating of global activity estimates as data are released and revisions become available. We apply the framework to the G-7 countries and study various aspects of national and global business cycles, obtaining three main results. First, our measure of the global business cycle, the common G-7 real activity factor, explains a significant amount of cross-country variation and tracks the major global cyclical events of the past forty years. Second, the common G-7 factor and the idiosyncratic country factors play different roles at different times in shaping national economic activity. Finally, the degree of G-7 business cycle synchronization among country factors has changed over time.