Working Papers
2024
May 3, 2024
Challenges Facing SSNs in Emerging and Developing Economies:
Description: We show how the standard social welfare framework can be used to assess the performance of social safety nets (SSNs) in terms of targeting efficiency and budget effort. We apply this framework to the World Bank’s ASPIRE database and find that the variation in poverty alleviation achieved by SSNs in emerging markets and developing economies (EMDEs) is driven mainly by variation in budget effort. Increasing transfer spending is therefore key to strengthening SSNs in EMDEs. However, the inability of many EMDEs to finely target transfers to poor households means the required spending increases are prohibitive over the short term, especially in low-income countries. This emphasizes the importance of enhancing targeting efficiency and we discuss how the use of proxy-means testing can contribute to this emphasizing the importance of careful design to manage the horizontal inequity inherent in such an approach to targeting.
May 3, 2024
The Impact of Reduced Commuting on Labor Supply and Household Welfare: A Post-Pandemic Analysis
Description: This paper examines the impact of changes in commuting time on welfare and labor supply in the aftermath of the COVID-19 pandemic. Utilizing data from the American Time Use Survey, we observe a shift in commuting time and working hours across occupations with varying ability of telework after the pandemic. We develop a household model of labor supply that accounts for commuting time, and we characterize how changes in commuting time impact individuals' and spouses' labor supply. We calibrate the model to the data. Our findings reveal that the observed post-pandemic decline in commuting time yields significant welfare gains: between 1.5 to 4.5 percent of consumption equivalents for households where at least one spouse experiences reduced commuting.
April 26, 2024
Dominant Drivers of Current Account Dynamics
Description: We estimate shocks that explain most of the variation in the current account at business cycle frequencies and over the long run. We then explore, using a standard open-economy macro model, which macroeconomic shocks are behind the empirical dominant drivers of the current account at business-cycle frequency. Rather than financial shocks or aggregate shocks to supply or demand, shocks to the relative demand between home and foreign goods are found to play a pivotal role in current account dynamics.
April 26, 2024
At the Threshold: The Increasing Relevance of the Middle-Income Trap
Description: We investigate the existence of a middle-income trap using finite state Markov chains, constant growth thresholds, and mean passage times. As well as studying output per head, we examine the dynamics of its proximate determinants: TFP, the capital-output ratio, and human capital. We find upwards mobility for the capital-output ratio and human capital, but not for relative TFP. The lack of upwards mobility in relative TFP, at least from an intermediate level, suggests that escaping the middle-income category can take many years, and such traps may become increasingly apparent in the years to come.
April 26, 2024
The Nexus of Climate and Monetary Policy: Evidence from the Middle East and Central Asia
Description: This paper investigates the effects of climate shocks on inflation and monetary policy in the Middle East and Central Asia (ME&CA) region. We first introduce a theoretical model to understand the impact of climate risks on headline and food inflation. In particular, the model shows how climate shocks could affect the path of policy rates through food prices. We then use local projections to estimate the impact of climate shocks on headline and food inflation. The results show that price stability is more easily achievable under positive climate conditions. Overall, our findings shed new light on the importance of considering climate-related supply shocks when designing monetary policy, particularly in countries where food makes up a significant part of the CPI-basket.
April 26, 2024
Cash Flow Analysis of Fiscal Regimes for Extractive Industries
Description: Mining and petroleum projects share characteristics distinguishing them from other sectors of the economy, which has led to the use of dedicated fiscal regimes for these projects. The IMF’s Fiscal Affairs Department uses fiscal modeling to evaluate extractive industry fiscal regimes for its member countries, and trains country officials on key modeling concepts. This paper outlines important preconditions needed for effective fiscal modeling, key evaluation metrics, and emphasizes the importance of transparent modeling practices. It then examines the modeling of commonly-used fiscal instruments and highligts where their economic impact differs, and how fiscal models can inform fiscal regime design.
April 26, 2024
Central Banks Casting a Global Financial Safety Net: What Drives the Supply of Bilateral Swaps?
Description: The expansion of bilateral swap arrangements (BSAs) since the Global Financial Crisis has led to a substantial reconfiguration of the Global Financial Safety Net (GFSN). This paper examines the drivers of BSA supply using a novel dataset on all publicly documented BSAs. It finds that countries with well-developed financial markets and institutions and high trade openness are more likely to backstop other economies by establishing BSAs. In addition, their choice of BSA counterparts is driven by strong investment and trade exposures to these countries, with variation in the relative importance of these factors across major BSA providers. The paper shows that geopolitical considerations often affect such decisions, as BSAs are less likely to be established between geopolitically distant countries and more likely between countries in the same regional economic bloc.
April 26, 2024
Public Debt Dynamics and the Impact of Fiscal Policy
Description: Public debt-to-GDP ratios have undergone substantial fluctuations over both the short and long term. Most recently, global debt-to-GDP ratios peaked at 100% on average in 2020 due to COVID-19, retracting substantially by 2022. To understand what drives these movements, we propose a structural approach to debt decompositions based on a SVAR identified with narrative sign restrictions. We find that GDP growth shocks and the corresponding comovements of macroeconomic variables are the key drivers of debt to GDP, accounting for 40% of the observed yearly variation in 17 advanced economies since the 1980s. Discretionary fiscal policy changes, in turn, account for less than 20% of the observed changes. The analysis also finds the primary balance multiplier on GDP to be very small. We reconcile our results with the literature, underscoring the importance of accurate shock identification and accounting for cross-country heterogeneity.
April 26, 2024
The Pitfalls of Protectionism: Import Substitution vs. Export-Oriented Industrial Policy
Description: Industrial policies pursued in many developing countries in the 1950s-1970s largely failed while the industrial policies of the Asian Miracles succeeded. We argue that a key factor of success is industrial policy with export orientation in contrast to import substitution. Exporting encouraged competition, economies of scale, innovation, and local integration and provided market signals to policymakers. Even in a large market such as India, import substitution policies in the automotive industry failed because of micromanagement and misaligned incentives. We also analyze the risk tradeoffs involved in various industrial policy strategies and their implications on the 21st century industrial policies. While state interventions may be needed to develop some new capabilities and industries, trade protectionism is neither a necessary nor a sufficient tool and will most likely be counterproductive.
April 16, 2024
The Power of Prices: How Fast Do Commodity Markets Adjust to Shocks?
Description: This paper establishes supply and demand elasticities for a broad set of commodities based on a consistent dataset and identification methodology. We apply granular IV methods to a new cross-country panel dataset of commodity production and consumption from 1960-2021. The results indicate that commodity demand and supply are typically price inelastic. Demand and supply tend to be the most inelastic for minerals, whereas they are most elastic for agricultural commodities. The elasticities of energy commodities fall somewhere in between. Supply and demand become more elastic at longer time horizons for mineral and energy commodities, but not for most agricultural commodities.