Working Papers
January 1, 0001
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January 1, 0001
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January 1, 0001
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January 1, 0001
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1997
October 1, 1997
Determinants of Inflation in Mozambique
Description: Mozambique’s inflation rate was consistently high until 1995, and then plunged in 1996 to 17 percent from 70 percent in 1994. This paper suggests that Mozambique’s inflation pattern is a combination of a “fundamental” trend set by economic policies, seasonal behavior that follows closely that of agriculture, and a collection of irregular events that corresponds mainly to agroclimatic conditions. The empirical results show that the marked tightening of monetary policy in 1996 was the ultimate reason for the control of inflation in 1996, and hence seems to correspond to a change in the “fundamental” trend of inflation that may have long-lasting effects.
October 1, 1997
Aging in the Asian “Tigers”: Challenges for Fiscal Policy
Description: The paper assesses the government expenditure effects from changing demographics in the Asian “Tiger” economies through 2050. With some exceptions, their limited social insurance commitments initially suggest that aging populations may not adversely affect fiscal balances. Yet for all the Tigers, changing illness patterns and medical modernization may combine with demographics to intensify budgetary pressures. The paper notes the implications of the Tigers’ reliance on private sector pension and medical insurance systems; the need for an active public role; and the complications for fiscal analysis when private sector instruments are used, in a mandatory way, as public policy instruments.
October 1, 1997
Stylized Facts of Government Finance in the G-7
Description: The stylized facts of government finance in the Group of Seven (G-7) industrial countries show that revenues lag real GDP procyclically, while government spending in most cases fails to lead the economy procyclically. This finding is not confined to transfers but also applies to the wage component of government consumption as well as, in most cases, to government fixed investment. Government deficits are always countercyclical but there is little evidence that stabilization is equally successful in stimulating the economy before shocks materialize.
October 1, 1997
Corruption, Public Investment, and Growth
Description: Corruption, particularly political or “grand” corruption, distorts the entire decision-making process connected with public investment projects. The degree of distortions is higher with weaker auditing institutions. The evidence presented shows that higher corruption is associated with (i) higher public investment; (ii) lower government revenues; (iii) lower expenditures on operations and maintenance; and (iv) lower quality of public infrastructure. The evidence also shows that corruption increases public investment while reducing its productivity. These are five channels through which corruption lowers growth. An implication is that economists should be more restrained in their praise of high public sector investment, especially in countries with high corruption.
October 1, 1997
Fiscal Policy and the Predictability of Exchange Rate Collapse
Description: It is well known that the long-run viability of a fixed exchange rate regime imposes constraints on monetary policy. This paper shows that, in a model with forward-looking agents, short-run viability imposes a fiscal constraint. When policy change, which destroys long-run viability, also violates the fiscal constraint, collapse is instantaneous. Delayed predictable collapse requires satisfaction of the fiscal constraint.
October 1, 1997
Cyclical Fluctuations in Brazil's Real Exchange Rate: The Role of Domestic and External Factors
Description: This paper examines the effects of capital inflows and domestic factors on Brazil’s real exchange rate. It describes the analytical framework, and then estimates a near-VAR model linking capital flows, interest rate differentials, government spending, money-base velocity, and the temporary component of the real exchange rate (TCRER). Generalized variance decompositions indicate that world interest rate shocks largely explain medium-term fluctuations in capital flows and the TCRER. Generalized impulse response functions show that a reduction in the world interest rate (and, to a lesser extent, an increase in government spending) have significant effects on the TCRER and capital flows.