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Business and Economics > Production and Operations Management

You are looking at 1 - 7 of 7 items for :

  • Type: Journal Issue x
  • Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian) x
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Cover IMF Working Papers
Output Gap Uncertainty and Fiscal Policy Adjustment in Real-Time in Emerging Economies
Giacomo Cattelan
and
Boaz Nandwa
Uncertainty around the real-time output gap has important implications for fiscal policy. This study uses successive vintages of the World Economic Outlook for emerging markets (EMs) during 1998-2022 to examine the reaction of discretionary fiscal policy to uncertain economic cycle in real-time. The findings show that EMs tend to have persistently negative and significantly more volatile real-time output gap estimates compared to advanced economies (AEs) and are less responsive to the output gap shocks. We calibrate a New Keynesian DSGE model to match the behavior of an average EM. The results from the model suggest that when EM policy makers are equally concerned about uncertainty around the output gap estimates and about fiscal implementation, fiscal policy is less counter-cyclical than the benchmark case with no uncertainty, entailing an efficiency loss for the purpose of output gap stabilization. On the other hand, when the concern is only about output gap uncertainty, EM policy makers tend to react more counter-cyclically but at a cost of public debt spiking in the short term and stabilizing over the long term. This implies that it might be optimal for EM policy makers to act more aggressively to stabilize the economy. We show that by adjusting the relative importance of output gap vs debt stabilization in their objective function, EM policy makers can achieve a similar outcome as in the benchmark case with no uncertainty.
Keywords:
Fiscal policy; real-time output gap estimates; public debt; output gap uncertainty; output gap shock; output gap estimate; real-time output gap; fiscal policy adjustment; Output gap; Fiscal stance; Neoclassical theory
Cover IMF Working Papers
Optimal Monetary Policy Under Bounded Rationality
Jonathan Benchimol
and
Lahcen Bounader
The form of bounded rationality characterizing the representative agent is key in the choice of the optimal monetary policy regime. While inflation targeting prevails for myopia that distorts agents' inflation expectations, price level targeting emerges as the optimal policy under myopia regarding the output gap, revenue, or interest rate. To the extent that bygones are not bygones under price level targeting, rational inflation expectations is a minimal condition for optimality in a behavioral world. Instrument rules implementation of this optimal policy is shown to be infeasible, questioning the ability of simple rules à la Taylor (1993) to assist the conduct of monetary policy. Bounded rationality is not necessarily associated with welfare losses.
Keywords:
WP; central bank; monetary policy
Cover IMF Working Papers
A Closed Form Multivariate Linear Filter
Mr. Francis Vitek
This paper considers the problem of jointly decomposing a set of time series variables into cyclical and trend components, subject to sets of stochastic linear restrictions among these cyclical and trend components. We derive a closed form solution to an ordinary problem featuring homogeneous penalty term difference orders and static restrictions, as well as to a generalized problem featuring heterogeneous penalty term difference orders and dynamic restrictions. We use our Generalized Multivariate Linear Filter to jointly estimate potential output, the natural rate of unemployment and the natural rate of interest, conditional on selected equilibrium conditions from a calibrated New Keynesian model.
Keywords:
WP; Closed form; Multivariate linear filter; New Keynesian model; Potential output; Natural rate of unemployment; Natural rate of interest; gap estimate; objective function; estimates to parameter perturbation; parameter estimate; maximization problem; inflation gap estimate; equilibrium value; interest rate gap; estimation Results; Unemployment rate; Output gap; Central bank policy rate; Neoclassical theory; Global
Cover IMF Working Papers
Unconventional Policy Instruments in the New Keynesian Model
Zineddine Alla
,
Mr. Raphael A Espinoza
, and
Mr. Atish R. Ghosh
This paper analyzes the use of unconventional policy instruments in New Keynesian setups in which the ‘divine coincidence’ breaks down. The paper discusses the role of a second instrument and its coordination with conventional interest rate policy, and presents theoretical results on equilibrium determinacy, the inflation bias, the stabilization bias, and the optimal central banker’s preferences when both instruments are available. We show that the use of an unconventional instrument can help reduce the zone of equilibrium indeterminacy and the volatility of the economy. However, in some circumstances, committing not to use the second instrument may be welfare improving (a result akin to Rogoff (1985a) example of counterproductive coordination). We further show that the optimal central banker should be both aggressive against inflation, and interventionist in using the unconventional policy instrument. As long as price setting depends on expectations about the future, there are gains from establishing credibility by using any instrument that affects these expectations.
Keywords:
WP
Cover IMF Staff Country Reports
France: Selected Issues
International Monetary Fund
This Selected Issues paper for France provides an analytical framework to explain the consequences of the downward shift in the unemployment/wages relationship. This framework is also used to analyze possible changes in the equilibrium unemployment rate resulting from cuts in employers’ social security contributions and movements in the user cost of capital. The contribution of wage moderation to the reduction in the equilibrium unemployment is quantified. The paper also addresses the question of fiscal benefits of job-rich growth in France during 1997–2000.
Keywords:
ISCR; CR; labor market; pair FR-IT; poverty program; unemployment locus; wage moderation; unemployment spending; Inflation; Employment; Neoclassical theory; Wages; Output gap; Global; Europe
Cover IMF Working Papers
Can the Neoclassical Model Explain the Distribution of Foreign Direct Investment Across Developing Countries?
Mr. Harm Zebregs
Since the beginning of the 1990s, foreign direct investment (FDI) in developing countries has increased dramatically. The distribution of FDI flows across these countries, however, is highly uneven; only a small number attract comparatively large amounts of foreign capital. This paper investigates whether the pattern of FDI flows can be explained by the standard neoclassical model or by modified versions of this model that allow for differences in production technologies across countries. The results suggest that the standard neoclassical approach is not particularly useful if we want to understand FDI flows to developing countries.
Keywords:
WP; FDI flow; FDI-GNP ratio; capital; GNP; Foreign Investment; Neoclassical Theory; flows to developing countries; FDI data; share parameter; Foreign direct investment; Capital flows; Capital productivity; East Asia
Cover IMF Working Papers
Growth, Productivity, and the Rate of Returnon Capital
Mr. Bankim Chadha
and
Mr. Charles Adams
This paper examines the ability of alternative classes of growth models to explain the historical experience of the U.S. economy. The potential returns to the U.S. from raising its investment rate in terms of both the level and growth rate of future output are then quantified. The long-run growth performance of the U.S. economy is found to be broadly consistent with the predictions of the neoclassical growth model. Endogenous growth models, which suggest a larger contribution of capital to growth and long-run effects of investment on the growth rate, do not seem to be supported by the data.
Keywords:
WP; production function; diminishing returns; depreciation rate; income share; growth contribution; investment rate; labor input; augmented labor; Neoclassical theory; Capital productivity; Production growth; Capital income