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Business and Economics > Production and Operations Management

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Cover Technical Notes and Manuals
User Manual for the DIGNAD Toolkit
Mr. Zamid Aligishiev
,
Cian Ruane
, and
Azar Sultanov
This note is a user’s manual for the DIGNAD toolkit, an application aimed at facilitating the use of the DIGNAD model (Debt-Investment-Growth and Natural Disasters) by economists with no to little knowledge of MATLAB and Dynare via a user-friendly Excel-based interface. DIGNAD is a dynamic general equilibrium model of a small open economy developed at the International Monetary Fund. The model can help economists and policymakers with quantitative assessments and policy scenario analysis of the macrofiscal effects of natural disasters and adaptation infrastructure investments in low-income developing countries and emerging markets. DIGNAD is tailored to disaster-prone countries, which typically are small countries or low-income countries that are particularly exposed to large climate shocks—countries where shocks that can disrupt the entire economy are frequent. However, DIGNAD can be relevant also for larger countries that may potentially be exposed to extreme climatic disasters in the future.
Keywords:
natural disasters; adaptation; resilient infrastructure; public investment; public investment efficiency; debt sustainability; DIGNAD toolkit; IMF copyright; DIGNAD model; GNU General Public License; third-party software; Infrastructure; Public investment spending; Total factor productivity; Depreciation; Sub-Saharan Africa
Cover Staff Discussion Notes
Digitalization During the COVID-19 Crisis: Implications for Productivity and Labor Markets in Advanced Economies
Ms. Florence Jaumotte
,
Longji Li
,
Andrea Medici
,
Myrto Oikonomou
,
Carlo Pizzinelli
,
Mr. Ippei Shibata
,
Jiaming Soh
, and
Ms. Marina Mendes Tavares
Digitalization induced by the pandemic was seen both as a possible silver-lining from the crisis that could increase longer-term productivity and a risk for further labor market inequality between digital and non-digital workers. The note shows that the pandemic accelerated digitalization and triggered a partial catch-up by less digitalized entities in advanced economies. Higher digitalization levels shielded substantially productivity and hours worked during the crisis. However, the extent to which the pandemic-induced digitalization led to structural change in the economy is less clear. Less digitalized sectors have rebounded more strongly, albeit after stronger declines, and while workers in digital occupations were more shielded from the crisis, there does not appear to be a structural change in the composition of labor demand. Meanwhile, shifts in labor supply are more likely to be permanent, driven by the increase in working from home.
Keywords:
Digitalization; COVID-19; labor market; productivity; productivity regression analysis; digitalization level; longer-term productivity; pandemic-induced digitalization; labor market tightness; Labor productivity; Labor markets; Total factor productivity; Europe
Cover Staff Discussion Notes
A Central Fiscal Stabilization Capacity for the Euro Area
Mr. Nathaniel G Arnold
,
Ms. Bergljot B Barkbu
,
H. Elif Ture
,
Hou Wang
, and
Jiaxiong Yao
This note outlines a concrete proposal for a euro area central fiscal capacity (CFC) that could help smooth both country-specific and common shocks. Specifically, it proposes a macroeconomic stabilization fund financed by annual contributions from countries that are used to build up assets in good times and make transfers to countries in bad times, as well as a borrowing capacity in case an exceptionally large shock exhausts the fund’s assets. To address moral hazard risks, transfers from the CFC—beyond a country’s own net contributions—would be conditional on compliance with the EU fiscal rules. The note also discusses several features aimed at avoiding permanent transfers between countries and making the CFC function as automatically as possible—to limit the scope for disputes over its operation—both of which are important points to make it politically acceptable.
Keywords:
SDN; moving average; Euro Area; Fiscal Integration; Macroeconomic Stabilization; CFC transfer; debt group; asset target; CFC assets; shock scenario; trend unemployment rate; aggregate CFC contribution target; CFC asset; deviation trigger; stabilization power; Unemployment rate; Fiscal rules; Return on investment; Output gap; Fiscal stabilization; Global; CFC proposal; inflation impact; usage premium; calibrating contribution; Stress testing
Cover Technical Notes and Manuals
A Toolkit to Assess the Consistency Between Real Sector and Financial Sector Forecasts
Sophia Chen
,
Mrs. Paola Ganum
, and
Mr. Pau Rabanal
e develop a toolkit to assess the consistency between real sector and financial sector forecasts. The toolkit draws upon empirical regularities on real sector and financial sector outcomes for 182 economies from 1980 to 2015. We show that credit growth is positively correlated with real sector performance, in particular when credit growth is unusually high or low. However, the relationship between credit growth and inflation is weak. These results hold for different country groups, including advanced economies, emerging markets and low-income countries. Combining credit growth with other variables such as house prices and the output gap helps to understand real sector outcomes. But including the financial account balance does not make a difference.
Keywords:
TNM; credit growth; price; real GDP; Macroeconomic Forecasts; Financial Forecasts; Consistency; Comovement; house price growth; credit condition; asset price fluctuation; equity price appreciation; GDP growth; Credit; Housing prices; Output gap; Financial sector; Emerging and frontier financial markets; Global
Cover Staff Discussion Notes
Gone with the Headwinds: Global Productivity
Gustavo Adler
,
Mr. Romain A Duval
,
Davide Furceri
,
Ksenia Koloskova
, and
Mr. Marcos Poplawski Ribeiro
Productivity growth—the key driver of living standards—fell sharply following the global financial crisis and has remained sluggish since, adding to a slowdown already in train before. Building on new research, this note finds that the productivity slowdown reflects both crisis legacies and structural headwinds. In advanced economies, the global financial crisis has led to “productivity hysteresis”—persistent productivity losses from a seemingly temporary shock. Behind this are balance sheet vulnerabilities, protracted weak demand and elevated uncertainty, which jointly triggered an adverse feedback loop of weak investment, weak productivity and bleak income prospects. Structural headwinds—already blowing before the crisis—include a waning ICT boom and slowing technology diffusion, partly reflecting an aging workforce, slowing global trade and weaker human capital accumulation. Reviving productivity growth requires addressing remaining crisis legacies in the short run while pressing ahead with structural reforms to tackle longer-term headwinds.
Keywords:
SDN; TFP growth; productivity growth; TFP slowdown; labor market; loss-making firm; productivity slowdown; Labor Productivity; Total factor Productivity; Growth; TFP hysteresis; TFP decomposition; TFP gain; Productivity; Global financial crisis of 2008-2009; Capital productivity; Global; Europe
Cover Spillover Notes
Impact of Migration on Income Levels in Advanced Economies
Ms. Florence Jaumotte
,
Ksenia Koloskova
, and
Ms. Sweta Chaman Saxena

The recent refugee surge has brought attention to the macro-critical policy issue of migration, including speculations that migration can be an unfavorable phenomenon for the receiving economies. A careful examination of the impact of migration on host economies is thus critical. Focusing on the economic impact, most of the academic discussion has centered on the effect of migration on labor markets and public finances. Much less is known about the long-term impact of immigration on the GDP per capita (or the standard of living) of host economies. This note makes three contributions to estimating this impact: it uses a restricted sample of advanced economies rather than a mixed sample of higher- and lower-income host countries, it examines whether the GDP per capita impact varies for different skill levels of migrants, and it goes beyond the aggregate impact of migration on GDP per capita to examine how broadly gains in this regard are shared across the population. In particular, it examines whether migration impacts the income levels of those both at the top and at the bottom of the earnings distribution, or whether gains are instead concentrated in a small group of high earners. It finds that immigration significantly increases GDP per capita in advanced economies, that both high- and lower-skilled migrants can raise labor productivity, and that an increase in the migrant share benefits the average income per capita of both the bottom 90 percent and the top 10 percent of earners, suggesting the gains from immigration are broadly shared.

Keywords:
SN; migrant; migration share; fcd7bf; gravity-predicted migration; migration cost; labor market; real GDP; least squares; migration effect; Migration; Aging; Personal income; Labor productivity; Europe
Cover Staff Discussion Notes
The New Normal: A Sector-level Perspective on Productivity Trends in Advanced Economies
Ms. Era Dabla-Norris
,
Mr. Si Guo
,
Mr. V. Haksar
,
Minsuk Kim
,
Ms. Kalpana Kochhar
,
Kevin Wiseman
, and
Ms. Aleksandra Zdzienicka
Total factor productivity growth was stagnant or slowing in many advanced countries even prior to the crisis. This paper documents sector-level productivity patterns across advanced economies prior to the crisis and examines the role of product and labor market rigidities as well as innovation and investments in information technology and human capital in driving productivity differences across sectors and countries. Since productivity payoffs of reforms evolve over time, we also focus on large changes in the structural indicators examine their dynamic impact on productivity, employment, and output. Our results suggest that reform priorities depend on country-specific settings, including the scale of specific policy distortions and the distance from the technology frontier. Productivity gains from reforms are large and materialize predominantly in the medium term, with some important variations across industries and countries.
Keywords:
SDN; TFP growth; productivity growth; TFP gain; productivity gain; TFP gap; productivity; structural reforms; growth; structural change; productivity frontier; productivity impact; productivity-enhancing effect; growth gain; TFP level; trend growth; productivity effect; Total factor productivity; Commodity markets; Information technology in revenue administration; Global; Europe
Cover Technical Notes and Manuals
Fiscal Multipliers: Size, Determinants, and Use in Macroeconomic Projections
Nicoletta Batini
,
Luc Eyraud
, and
Lorenzo Forni
Fiscal multipliers are important tools for macroeconomic projections and policy design. In many countries, little is known about the size of multipliers, as data availability limits the scope for empirical research. This note provides general guidance on the definition, measurement, and use of fiscal multipliers. It reviews the literature related to their size, persistence and determinants. For countries where no reliable estimate is available, the note proposes a simple method to come up with reasonable values. Finally, the note presents options to incorporate multipliers in macroeconomic forecasts.
Keywords:
TNM; spending; government spending; revenue management; spending shock; stance factor; Fiscal policy; fiscal multipliers; fiscal multiplier; multiplier estimate; multipliers in EME; shock effect; Fiscal consolidation; Output gap; Global
Cover Staff Discussion Notes
Adjustment in Euro Area Deficit Countries: Progress, Challenges, and Policies
Mr. Thierry Tressel
,
Mr. Shengzu Wang
,
Mr. Joong S Kang
,
Mr. Jay C Shambaugh
,
Mr. Jörg Decressin
, and
Ms. Petya Koeva Brooks
Imbalances within the euro area have been a defining feature of the crisis. This paper provides a critical analysis of the ongoing rebalancing of euro area “deficit economies” (Greece, Ireland, Portugal, and Spain) that accumulated large current account deficits and external liability positions in the run-up to the crisis. It shows that relative price adjustments have been proceeding gradually. Real effective exchange rates have depreciated by 10-25 percent, driven largely by reductions in unit labor costs due to labor shedding. While exports have typically rebounded, subdued demand accounts for much of the reduction in current account deficits. Hence, the current account balance of the euro area as a whole has shifted into surplus. Internal rebalancing has come with subdued activity—notably very high unemployment in the deficit economies—and made continued adjustment more difficult. To advance rebalancing further, the paper emphasizes the need for: (1) macroeconomic policies that support demand and bring inflation in line with the ECB’s medium-term price stability objective; (2) continued EMU reforms (banking union) to ensure proper financial intermediation; and (3) structural reforms in product and labor markets to improve productivity and support the reallocation of resources to tradable sectors.
Keywords:
SDN; deficit country; deficit economy; area country; countries vis-à-vis; financial system; labor market; Euro Area; Crisis; Current account; Rebalancing; Competitiveness; External stability; Structural reforms; Potential output; Current account deficits; Output gap; Price adjustments; Global
Cover Staff Discussion Notes
Emerging Markets in Transition: Growth Prospects and Challenges
Mr. Luis M. Cubeddu
,
Mr. Alexander Culiuc
,
Ms. Ghada Fayad
,
Miss Yuan Gao
,
Ms. Kalpana Kochhar
,
Ms. Annette J Kyobe
,
Ceyda Oner
,
Mr. Roberto Perrelli
,
Sarah Sanya
,
Ms. Evridiki Tsounta
, and
Mr. Zhongxia Zhang
After a short-lived slowdown in the immediate aftermath of the global financial crisis and a swift rebound, emerging markets (EM) are now entering a period of slower growth. In fact, growth is now lower than the post-crisis peak of 2010-11, as well as the rates seen in the decade before the crisis. This raises the question of whether EMs can bounce back to the growth rates seen in the last decade or whether their prospects are dimmer than thought a few years ago. This SDN we will explore the drivers of the slowdown, how changes in external conditions that supported high growth in EMs will affect them over the medium term, and the policy priorities needed to sustain the growth rates seen in the past decades. In doing so, the paper differentiates EMs along various dimensions (e.g. degree of commodity dependence, trade and financial openness) to highlight the need to tailor policy priorities.
Keywords:
SDN; EMs Decelerating Simultaneously; EM growth; commodity; interest rate; emerging markets; growth; potential growth; convergence; heterogeneity; structural reform; productivity; commodity-exporting EMs; value chain; physical capital; trading partner growth; commodity dependence; export-oriented EMs; excess demand; productivity gain; Total factor productivity; Commodity prices; Global financial crisis of 2008-2009; Global; Africa