These studies, prepared by the staff of the International Monetary Fund, comprise supporting material for the analyses and scenarios in the World Economic Outlook and provide a more detailed examination of the theory and evidence on some major issues affecting the global economy, commodity prices, and individual countries.
Mr. Paul R Masson, Mr. Tamim Bayoumi, and Hossein Samiei
Saving has always been an important issue in economics. It plays a central role in income determination, both in the short run through aggregate demand and in the long run through capital formation and wealth accumulation. The prospects for aggregate saving are a particularly relevant issue currently, as there are large potential future demands on world saving. In particular, the investment needs of transforming and newly industrializing economies may come at a time of significant government dissaving in many industrial countries, where aging populations are also likely to reduce private saving rates and raise government deficits in the coming decades. Understanding the determinants of saving is necessary in order to assess the resources that will be available to finance investment and the prospects for real interest rates.
The global real interest rate is arguably the most important price in world financial markets. It determines the rate at which agents in the world economy are willing to substitute today’s consumption for consumption in the future, and, at the same time, it signals the pressures that investment demands impose on the supply of world saving. By some accounts, the global real interest rate in the mid-1990s is high by historical standards. Is it? Do world economic policies influence the real interest rate over the medium to long term, or do other factors, such as technological change, matter more? And has government dissaving really been a driving force behind the rise of the global real interest rate since the early 1980s, as claimed by some? This paper analyzes these issues. It has two main objectives. First, it develops measures of the global real interest rate and provides historical evidence to help judge whether the rate today is high or low. Second, it examines the factors that influence the global real interest rate over time and quantifies the extent to which shifts in government policies and other factors have caused it to move.
For a number of years, the biannual issues of the World Economic Outlook have regularly featured a measure of “fiscal impulse” for each of the seven major industrial economies in the discussion of conditions and prospects of the industrial countries. Although it has recently been given less emphasis, as attention has shifted to the concepts of structural and cyclical fiscal balances, the fiscal impulse measure continues to be reported. In contrast, there has been no presentation of a comparable common or standardized measure of monetary impulse for the major industrial countries. As monetary policy is unquestionably crucial for the success or failure of macroeconomic policies, it would seem that some additional attempt at systematization could be useful; in particular, it could provide a complement to the ranges of monetary indicators relied upon by individual monetary authorities and to the analysis of the world economic outlook itself. Consequently, the present paper is devoted to the development and investigation of one potential measure of monetary policy stance.
This paper is motivated by a simple idea that has received lamentably little attention in the literature on unemployment policy: different unemployment policies are generally based on different theories of unemployment, and confidence in a policy should depend—at least in part—on the ability of the underlying theory to account for some prominent empirical regularities in unemployment behavior.
Slow growth of total factor productivity limited the economic achievements of centrally planned economies, and central planning itself produced many of the distortions that thwarted economic growth. Most observers presume that the substitution of market for planning processes should ultimately remove the distortions inherited from central planning and, in particular, produce improved labor allocation and effort. In contrast, the discussion of economic policy during the transition accords much less attention to an issue that occupies the research agenda of many western economists: the distortions and inefficiencies that may result from the institutional structure of labor markets in market economies. The outcome of this research is a conviction that labor market performance is not independent of the institutional structures governing pay determination and the regulation of employment relationships.
Since the onset of economic transition in Russia, the perception has become increasingly widespread that output and living standards are highly unlikely to have dropped as much as the official numbers indicate.2 Many observers find it hard to believe that the size of the Russian economy really halved between the late 1980s and 1994. This judgment, however, remains very much an impressionistic one, relying on anecdotal or partial evidence rather than on a documented set of alternative estimates. The ambition of this paper is to show that the output decline was much less than what is recorded in the national accounts data published by the Russian State Committee for Statistics (Goskomstat). The paper also discusses some of the welfare implications of the fall and recomposition of output. It concludes that too many tears have been shed on measured output losses, and that the transition process itself should not be blamed for the dismal heritage with which it was endowed.
Worldwide flows of foreign direct investment began to surge about ten years ago. In the year 1984, the total flow of direct investment outward from the industrial economies (which accounted for the vast majority of total measured flows worldwide) was a substantial $49.5 billion. Subsequently, flows of foreign direct investment steadily increased each year until they peaked in 1990 at $222 billion, more than quadruple the 1984 level. Following the 1990 peak, annual flows of foreign direct investment attenuated somewhat but remained at high levels ($178 billion in 1991, $162 billion in 1992, and $175 billion in 1993).