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Mr. Jorge A Chan-Lau and Ran Wang
We introduce unFEAR, Unsupervised Feature Extraction Clustering, to identify economic crisis regimes. Given labeled crisis and non-crisis episodes and the corresponding features values, unFEAR uses unsupervised representation learning and a novel mode contrastive autoencoder to group episodes into time-invariant non-overlapping clusters, each of which could be identified with a different regime. The likelihood that a country may experience an econmic crisis could be set equal to its cluster crisis frequency. Moreover, unFEAR could serve as a first step towards developing cluster-specific crisis prediction models tailored to each crisis regime.
Jelle Barkema, Tryggvi Gudmundsson, and Mr. Mico Mrkaic
Estimates of output gaps continue to play a key role in assessments of the stance of business cycles. This paper uses three approaches to examine the historical record of output gap measurements and their use in surveillance within the IMF. Firstly, the historical record of global output gap estimates shows a firm negative skew, in line with previous regional studies, as well as frequent historical revisions to output gap estimates. Secondly, when looking at the co-movement of output gap estimates and realized measures of slack, a positive, but limited, association is found between the two. Thirdly, text analysis techniques are deployed to assess how estimates of output gaps are used in Fund surveillance. The results reveal no strong bearing of output gap estimates on the coverage of the concept or direction of policy advice. The results suggest the need for continued caution in relying on output gaps for real-time policymaking and policy assessment.
Mr. Timothy C Irwin
This proposed SDN surveys the various accounting stratagems which governments have used to meet fiscal targets—thereby sidestepping the need for true adjustment—and suggests remedial actions to limit this type of fiscal non-transparency. Types of creative accounting covered includes, for instance, currency swaps to hide a debt build-up (as in Greece in 2001–07), sale and leaseback of government property (for example, in the United States), assumption of long-term pension obligations in exchange for short-term revenue (Argentina, Hungary, and other Eastern European countries), use of public-private partnerships to defer the recognition of investment spending (for instance, Portugal), and reliance on non-cash compensation (such as pension rights) to reduce measured wage bills (in the United States, United Kingdom, etc.) As is evident from the examples given, these fiscal tricks have recently come under increased international scrutiny, highlighting the importance of good fiscal reporting, accounting, and transparency in general, for avoiding unpleasant surprises, ensuring government accountability, and containing fiscal vulnerabilities.
International Monetary Fund
This Selected Issues paper provides updates on Greece’s financial stability framework. The paper highlights that the Bank of Greece (BoG) has strengthened the financial stability framework over recent years. In addition to the liquidity provided by the euro system through its regular refinancing operations and standing facilities, the BoG can provide emergency liquidity assistance (ELA) to financial institutions. In response to the global financial crisis, the authorities have assisted bank capital and funding. A manual has been developed to monitor financial stability and spell out contingency plans for the management of crises.
Mr. Marco Terrones, Mr. Ayhan Kose, and Mr. Stijn Claessens
We provide a comprehensive empirical characterization of the linkages between key macroeconomic and financial variables around business and financial cycles for 21 OECD countries over the period 1960–2007. In particular, we analyze the implications of 122 recessions, 112 (28) credit contraction (crunch) episodes, 114 (28) episodes of house price declines (busts), 234 (58) episodes of equity price declines (busts) and their various overlaps in these countries over the sample period. Our results indicate that interactions between macroeconomic and financial variables can play major roles in determining the severity and duration of recessions. Specifically, we find evidence that recessions associated with credit crunches and house price busts tend to be deeper and longer than other recessions. JEL Classification Numbers: E32; E44; E51; F42
Hulya Ulku
This paper investigates the main postulations of the R&D based growth models that innovation is created in the R&D sectors and it enables sustainable economic growth, provided that there are constant returns to innovation in terms of R&D. The analysis employs various panel data techniques and uses patent and R&D data for 20 OECD and 10 Non-OECD countries for the period 1981–97. The results suggest a positive relationship between per capita GDP and innovation in both OECD and non-OECD countries, while the effect of R&D stock on innovation is significant only in the OECD countries with large markets. Although these results provide support for endogenous growth models, there is no evidence for constant returns to innovation in terms of R&D, implying that innovation does not lead to permanent increases in economic growth. However, these results do not necessarily suggest a rejection of R&D based growth models, given that neither patent nor R&D data capture the full range of innovation and R&D activities.
International Monetary Fund. Research Dept.
The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.
International Monetary Fund
This paper examines the extent to which conclusions of cross-country studies of private savings are robust to allowing for the possible heterogeneity of savings behavior across countries and the inclusion of dynamics. It shows that neglecting heterogeneity and dynamics can lead to misleading inferences about the key determinants of savings behavior. The results indicate that among the many variables considered in the literature only the fiscal variables—the general government surplus as a proportion of GDP and the ratio of government consumption to GDP—are important determinants of private savings rates in the industrial countries in the post-World War II period.
Mr. Dominique Desruelle and Mr. Alessandro Zanello
This paper describes the methodology and the data used to compute nominal and real effective exchange rate indices in the International Monetary Fund’s Information Notice System (INS). In particular, it highlights improvements to the INS implemented over 1994-96, including modifications to the computational methodology, use of updated data, and extension of the INS to recent Fund members.