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Mr. Edgardo Ruggiero, Mr. Peter S. Heller, Mr. Menachem Katz, Mr. Robert A Feldman, Mr. Richard Hemming, Mr. Peter Kohnert, Ziba Farhadian, Mr. Donogh McDonald, Ahsan S. Mansur, and Mr. Bernard Nivollet

Abstract

Most of the seven major industrial countries are now experiencing significant changes in their demographic structure. A persistent pattern of declining fertility and improving life expectancy has created major segments of the population that are already relatively aged or will become so in the near future. This paper examines the impact of prospective demographic trends on the level and structure of social expenditure by the governments of the seven major industrial countries (the Group of Seven) through the year 2025.

STEPHEN S. GOLUB*

This paper uses a Ricardian framework to clarify the role of micro–economic and macroeconomic factors governing the time–series and cross–sectional behavior of sectoral trade balances. Unit labor costs and trade balances are calculated for several sectors for the seven major industrial countries. The time–series and cross-sectional variation in sectoral unit labor costs is decomposed into relative productivity, wage differentials, and exchange rate variations. The main findings are that changes over time in sectoral trade balances, especially for the United States and Japan, are quite well explained by the evolution of unit labor cost, suggesting that trade patterns conform to comparative advantage. The cross–sectional results are, however, less conclusive.

Mr. Joshua Aizenman

The impact of exchange rate regimes on domestic and foreign investment in the presence of a short-run Phillips curve is investigated. Producers may diversify internationally to increase the flexibility of production, thereby diversifying country-specific productivity and monetary shocks. Aggregate investment is shown to be higher under a fixed exchange rate than under a flexible exchange rate for both productivity and monetary shocks. Welfare is not, however, necessarily higher under either regime: a flexible exchange rate stabilizes employment in the presence of real shocks at the cost of reduced expected GNP and investment.

International Monetary Fund. External Relations Dept.

The IMF released on September 14 the report of a group of independent experts: External Evaluation of IMF Surveillance. At a press conference accompanying the release of the report—whose conclusions were broadly welcomed by the IMF Executive Board, management, and staff—the chair of the Board’s Evaluation Group, Thomas Bernes of Canada, said that in selecting the topic of IMF surveillance, the Board “wanted to look at what is at the heart of the IMF’s mandate.” The aim was not to look at individual country programs, he said, but to examine how the whole process of surveillance was carried out—both bilateral reviews of individual economies and multilateral surveillance (as in the case of the IMF’s World Economic Outlook exercise).

International Monetary Fund

Abstract

Many factors appear to underlie the increasing willingness of governments to adopt restrictive trade measures, even while reiterating their basic commitment to an open and liberal trading system. The survey in the preceding section leads to the conclusion that the issue is complex, that a multiplicity of factors—economic and social—are at work, and that explanation must be sought in terms of the interaction of these factors.

DOUGLAS LAXTON

This paper provides a nontechnical introduction to the IMF’s Global Economy Model (GEM). GEM is a modern dynamic stochastic general equilibrium (DSGE) model that has been designed for studying a range of issues that cannot be adequately addressed with reduced-form econometric models or an earlier generation of macromodels whose dynamic equations were not based on strong choice-theoretic foundations. Unlike earlier models, which were viewed as black boxes by many outsiders, GEM’s theoretical structure is much better connected with work in the academic community, making it considerably easier for outside researchers to apply it and extend it for their own work. To understand the basic philosophy behind GEM, we start by using the issue of exchange rate pass-through to understand how adding additional features to the model allows one to better understand issues related to the magnitude of exchange rate pass-through. We then provide a nontechnical introduction to what needs to be known to develop a steady-state calibration of the model. Finally, we end by summarizing other work on DSGE modeling at the IMF and lay out a few major priorities for the future. IMF Staff Papers (2008) 55, 213–242; doi:10.1057/imfsp.2008.11

Mr. Edgardo Ruggiero, Mr. Peter S. Heller, Mr. Menachem Katz, Mr. Robert A Feldman, Mr. Richard Hemming, Mr. Peter Kohnert, Ziba Farhadian, Mr. Donogh McDonald, Ahsan S. Mansur, and Mr. Bernard Nivollet

Abstract

Most of the seven major industrial countries are now experiencing significant changes in their demographic structure. A persistent pattern of declining fertility and improving life expectancy has created major segments of the population that are already relatively aged or will become so in the near future. This substantial change in the demographic structure is likely to have far-reaching implications. As to the economic ramifications alone, it is likely to affect the size, structure, and dynamics of the labor force and may cause difficulties in accommodating an aging work force; it may significantly challenge the maintenance of sustained and buoyant growth; and it is likely to alter the demand for goods and services. As to implications for the public sector, it is likely to influence the demand not only for pensions, but for other social expenditures as well (on education, medical care, etc.,). Furthermore, such a change could pose serious financial problems as the working-age segment of the population shrinks in proportion to the retired segment heightening the likelihood of intergenerational conflict. In most countries, concern over the aging problem has led to considerable discussion and the enactment of specific policy measures in the areas of pensions and medical care. Nevertheless, despite the potential importance of this issue, none of the seven major industrial countries has undertaken a comprehensive analysis of the combined impact of an aging population on the various components of government expenditure.1

Michael J. Artis

Abstract

This paper analyzes the short-term forecasts for industrial and developing countries produced by the IMF and published twice a year in the World Economic Outlook. For the industrial country group, the forecasts for output growth and inflation are satisfactory and pass most conventional tests in forecasting economic developments, although forecast accuracy has not improved over time, and predicting the turning points of the business cycle remains a weakness. For the developing countries, the task of forecasting movements in economic activity is even more difficult and the conventional measures of forecast accuracy are less satisfactory than for the industrial countries. [JEL: E17, E37, F17, F47]

International Monetary Fund

Abstract

Research activity in the IMF emphasizes the links between the organization's policy and operational concerns. The main objectives of research is IMF staff understanding of policy and operational issues relevant to the institution, and to improve the analytical quality of the work prepared for management and the Executive Board and the advice provided to member countries. The scope of research in the IMF is defined by the purposes and functions of the institution. In order to foster innovation and ensure quality control, the IMF makes much of its research available outside the institution and encourages staff to interact with academia and other research organizations through conferences, seminars, and occasional joint research projects. The visiting scholar’s program has also enhanced the quality of research done in the IMF. This program brings in leading members of the economics profession from around the world to assist in the preparation of papers for the Executive Board and to conduct research on IMF-related issues.