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Mr. Marco Marini
Benchmarking methods can be used to extrapolate (or “nowcast”) low-frequency benchmarks on the basis of available high-frequency indicators. Quarterly national accounts are a typical example, where a number of monthly and quarterly indicators of economic activity are used to calculate preliminary annual estimates of GDP. Using both simulated and real-life national accounts data, this paper aims at assessing the prediction accuracy of three benchmarking methods widely used in the national accounts compilation: the proportional Denton method, the proportional Cholette-Dagum method with first-order autoregressive error, and the regression-based Chow-Lin method. The results show that the Cholette-Dagum method provides the most accurate extrapolations when the indicator and the annual benchmarks move along the same trend. However, the Denton and Chow-Lin methods could prevail in real-life cases when the quarterly indicator temporarily deviates from the target series.
International Monetary Fund
Hong Kong has grown strongly as a result of its successful transformation from a manufacturing presence to a services hub over past decades. Executive Directors support the government’s commitment for the Linked Exchange Rate System. Hong Kong’s future as a financial center is linked to its expanding role in mainland intermediation. Although the current fiscal stance is appropriate, some fiscal reforms remain pending. The government is aware of the central importance of Hong Kong’s traditional strengths to its ongoing success.
Assaf Razin, Mr. Ashoka Mody, and Efraim Sadka
We develop a simple information-based model of FDI flows. On the one hand, the abundance of "intangible" capital in specialized industries in the source countries, which presumably generates expertise in screening investment projects in the host countries, enhances FDI flows. On the other hand, host-country corporate-transparency diminishes the value of this expertise, thereby reducing the flow of FDI. Empirical evidence (from a sample of 9 source countries and 13 host countries over the 1980s and 1990s), analyzed in a gravity-equation model, provides support for the theoretical hypotheses. The model also demonstrates that the gains for the host country from FDI (over foreign portfolio investment (FPI)) are reflected in a more efficient size of the stock of domestic capital and its allocation across firms. These gains are shown to depend crucially (and positively) on the degree of competition among FDI investors.
International Monetary Fund

This 2002 Article IV Consultation highlights that a cyclical slowdown in domestic demand coupled with global economic weakness led to slower growth of Sweden in 2001. Private consumption stagnated despite rising disposable income, owing to adverse confidence and wealth effects from the continued plunge in stock prices. Exports suffered their weakest year in a quarter century, as telecom exports—the driving force behind the recent rapid growth—fell by about one-third. The weak krona and supportive fiscal and monetary policies, however, helped contain the severity of the slowdown.

Mr. Athanasios Vamvakidis and Mr. Vivek B. Arora
This paper provides a quantitative assessment of the impact of economic growth in the United States on growth in other countries. Using panel data estimation, the paper finds a significant positive impact of U.S. growth on growth in the rest of the world, especially developing countries, during the past few decades. The evidence suggests that the impact of U.S. growth on other countries can be explained by the significance of the United States as a global trading partner. The paper provides estimates of the direct impact of trade with the United States on growth in several individual countries.
Ms. Dalia S Hakura
While the Heckscher-Ohlin-Vanek (HOV) theorem has been a dominant paradigm in trade theory, the empirical evidence to support it has been weak. This paper develops a modified HOV model that allows technologies to differ across countries. The revised model significantly improves the theory’s accuracy in predicting trade flows in contrast to the traditional model. The paper also illustrates that, since countries have different technologies, measures of factor contents of trade in final goods using direct and domestically produced indirect input requirements are more accurate and yield more consistent predictions than do traditional measures.
Mr. Jack Bame
The relevance of the standard measures of international transactions in goods and services as reflected in the fifth edition of the IMF Balance of Payments Manual (BPM) and in the 1993 System of National Accounts (SNA) has been questioned in several recent studies and articles. Alternative measures have been proposed, that either (i) substitute an ownership basis for transactions for the long-established residency basis; (ii) maintain the residency basis but combine net direct, investment income with goods and services; or question the validity of any measures in the form of net balances as a guide to policy. This paper affirms the central role of residency in the international accounts, discusses the supplementary value of alternative proposals, and notes the importance of international efforts to improve and refine the measurement of external transactions based on the principles of the BPM and SNA.
International Monetary Fund. External Relations Dept.

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J. Marcus Fleming

THE PRESENT PAPER constitutes the first part of a study designed to show the order of magnitude of the increases in domestic prices that will result, on specified assumptions regarding the relevant foreign trade elasticities and propensities, from exchange depreciation accompanied by appropriate financial policies. Exchange devaluation may be used to improve the balance of payments or to permit a relaxation of import restrictions. Only the former use is considered here, the latter being reserved for consideration in a later paper. It is assumed here that exchange depreciation is accompanied by a financial policy that leaves unchanged the level of aggregate employment. For the type of depreciation examined, such a policy is taken to be compatible with the maintenance of stability in the prices of home trade goods, although the prices of import and export goods will rise.